The multi-faceted and staggeringly complex way the HNA Group has been allowed to structure itself is now coming home to roost – and things are not looking good for the multi-national multi-company conglomerate that started off as a simple airline.
Hainan Airlines owns multiple subsidiaries like Beijing Capitol Airlines. Hainan Airlines itself is owned by Hainan Airlines Holding. They are owned in part by HNA Group (just 3.5%) and in part by Grand China Air and others, but the HNA Group investment in share holdings of the others, rather than outright ownership, gives it near control of most of the other share holders who own it. Did you think this would be simple?
This circular ownership structure means none of them have any cash – and that includes the airline, which is only just ahead of legal cash minimums (usually around 30 days on hand, falling to 24 with Government approval) to remain operational.
However Hainan Airlines hasn’t paid its fuel bills since October 2017 and South China Bluesky Aviation Oil – a subsidiary of Government owned China National Aviation Fuel Group, has said it will cut off supplies unless it gets paid by March 18th. You would think having had six months grace – which can only have come from the Government allowing the situation to continue through its state-owned oil company, to help the airline sort itself out, Hainan would have been quicker to pay up.
However the cash flow scenario is now dire. lease payments have been delayed or re-scheduled, the HNA Group is shedding 100,000 jobs globally and selling off assets – but nowhere near fast enough to pay ist $50 billion debt interest payments.
The solution the HNA Group has come up with is to hand over all of its ownership in West Air and Guilin Airlines, its flight school Hainan Sky Plumage, and its hotel investment and management company HNA Hotels Holding, to Hainan Airlines Holding.
However, if Hainan Airlines cannot even pay its leases and fuel bills, it certainly hasn’t got money to buy out HNA Groups interests in these business units – Leaving HNA Group, and its airlines in a difficult mess.
Hainan Holdings however has many joint ventures with Local Authorities and Regional Governments, and many of them are paying up plenty of cash to keep Tianjin and Urumqui Airlines afloat. It would look very bad, and local government leaders would lose face with Beijing if they were to fail. It isn’t though, enough to keep Hainan Airlines out of trouble by itself.