HNA Group to be Taken Over – Will Hainan Airlines and Hong Kong Airlines Survive?

By Ankur Deo | February 20, 2020

The novel coronavirus (now officially, the covid-19) has taken a gargantuan toll on the East Asian aviation industry. First, the number of flights operating to and from China and Hong Kong are down to only one third, and second, the airlines based out this particular geography are struggling to keep with the sudden drop in business. Hainan Airlines and Hong Kong Airlines have been struggling to stay afloat for quite some time, but the epidemic has further weakened their standing and the government of China is primed to take over the parent company of both carriers, the HNA Group.

Hainan Airlines Airbus A330-300

According to reports, the government of Hainan is in talks to take control of HNA after the covid-19 outbreak has further hindered its ability to meet financial obligations. Hainan Airlines’ assets could then be sold off to local companies to help improve the firm’s dire state. Though the state Hong Kong Airlines (HKA) was not directly specified, but if the HNA Group is sold off, fate of HKA also hangs in the balance.

China is under tremendous pressure to help contain the spread of the virus while trying to limit the damage done to its economy; officials are looking into direct cash infusions or partnerships for the damaged airline market. HNA is a firm with the tremendous corporate debt, having spent over $40b on properties and acquisitions across six continents over the last couple of years, including stakes in Deutsche Bank to Hilton. However, with the aviation market dwindling in Hong Kong last year, along with the covid-19 hitting China hard, this all-in tactic has not paid off for the group, and revenue generated has been on decline since almost a year.

If the government does take control of HNA, it could opt to merge Hainan Airlines into one of the other state-owned carriers, or it might simply liquidate the assets of the airline to infuse cash into HNA. China’s aviation regulator acknowledged the industry’s dire condition last week and said it would support mergers and restructurings to help airlines cope with the epidemic.

While Hong Kong Airlines and other carriers have attempted to save cash by laying off employees and delaying payments to staff, this strategy might not work in the long run, given the fact that tourism and business takes months to reinstate after an epidemic. While more details about this deal are yet to be known, this could very well be the final nail in the saga of Hong Kong and Hainan Airlines.

We are following this news closely. Stay tuned for more!



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