On Wednesday (19 Feb), Bloomberg reported, citing from individuals familiar with the issue, that China plans to buy over the multi-industried conglomerate HNA Group (HNA) and sell off its airline assets. The company is failing to meet its financial obligations after taking a hit from the Covid-19 outbreak.
The government of Hainan, which is the southern province that HNA is headquartered in, is in talks regarding the ownership of the company, Bloomberg reported. A few local carriers are controlled by HNA directly, including its flagship Hainan Airlines. At the requests for comment by Bloomberg, there was no immediate response by HNA.
According to the plan, most of HNA’s airline assets will be sold to China’s three largest carriers which are China Eastern Airlines Corp, Air China Ltd and China Southern Airlines Co, the report highlighted.
In a compromise deal, Jet orders have been restructured between HNA and Europe’s Airbus that includes an order for dozens of A330neo jets, according to Reuters who have spoken to people familiar with this.
In the past, HNA spent $50 billion on acquisitions in prime property in San Francisco, New York and Sydney, stakes in Deutsche Bank as well as Hilton Worldwide, making it one of China’s most aggressive deal-making companies.
HNA accumulated a lot of debts due to its acquisition spree which has also attracted regulatory scrutiny. Due to this, HNA is changing its focus to its businesses in tourism and airlines as it also unwinds the bulk of its acquisitions.
However, bankers noted that the complex structures and loans and other business links binding the holdings as well as the prices asked by HNA have caused difficulty in unwinding its investments.
According to Chen Feng, the chairman of HNA in December last year, some salary payments were delayed in 2019 as a result of cash flow shortages, but Mr Feng vowed to settle these liquidity risks this year.
In 2020, the airline industry has been battered by not just the weakened demand in the slowing global economy, but also the Covid-19 virus outbreak which have led to thousands of flights being cancelled by airline companies.
Reuters reported that Hainan Airlines among others have attempted to minimise their losses by putting foreign pilots on unpaid leave. HNA also partly owns Hong Kong Airlines, who announced that it will slash 400 jobs.
In June 2018, Temasek Group’s subsidiary Temasek Fullerton Alpha bought 700 million yuan (S$140m) ( worth of HNA shares, or 10 per cent of the total of 7 billion yuan (S$1.4b) shares sold to a group of investors.
In October 2018, due to the financial burden, HNA was looking pay 12 percent interest to borrow in U.S. dollars for two-year dollar bonds as a means of financing.
Last week, China’s aviation regulator acknowledged the struggles face by the industry, and it would support mergers and restructurings to assist airlines deal with the outbreak.