Hong Kong Airlines – what’s next as it starts a dire 2019?

hong-kong-airlines

Hong Kong Airlines has had a dire start to the new year. Global reports on its imminent possible demise, tied mostly to its debts and links with parent HNA Group, were one thing. It was the almost endless departure of its most senior managers that really rattled everyone during the last months of 2018. Added to that were analyst reports from major banks saying it couldn’t fund its interest payments or repay a bond due on the 26th January to the tune of over $500m USD.

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So where does it stand?

Its parent HNA Group who amongst many other businesses, owns Hainan Airlines, with which Hong Kong Airlines shares near-identical liveries and branding, is in deep financial trouble. It owes $50 billion US and is under severe pressure from the Chinese Government to shed it and, in simple terms get realistic.

Nothing is simple with HNA group, which is a so opaque and so secretive that few forensic accountants have even come close to unwinding what owns what and where from.

For example the bond issuer to Hong Kong Airlines is in fact a wholly owned subsidiary called Blue Skyview. Hong Kong Airlines is also a privately owned company so has no obligation to reveal any of its business data.

In recent days Chinese state-owned China Development Bank has apparently agreed a line of credit to cover the $550m USD debts Hong Kong Airlines has at present. On top of that HNA group seems to have buried part of its ownership in 2017, around 58% of Hong Kong Airlines, to a British Cayman Islands trust (basically the equivalent of a financial black hole), called Frontier Investment Partners.

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Past to future

Hong Kong Airlines core policy is to turn it into a real alternative to Cathay Pacific’s domination of the local market. The whole region is vast, with some 60 million people in the Hong Kong catchment area around the Pearl River delta, but its not without competitors.

Another problem is that Hong Kong Airlines is limited as to where it can fly internationally, not being part of any open skies arrangements to the US, routes are restricted to those agreed by the two states, and Cathay Pacific has most of them.

Hong Kong Airlines has done some strange things over the years.

  • In 2011 it ordered 10 A380’s and has since cancelled them.
  • It launched an all-premium economy service to London Gatwick in 2012 on A330-200’s even though nobody expected it to be a success. It was dropped after 7 months.
  • It went for an IPO in 2015, then dropped it, with no explanation.
  • It hasn’t maintained its fleet growth strategy at the end of 2019.

The airline is however, and there’s no getting round it because of the way it was originally set up, very dependent on its owners HNA Group and Hainan Airlines. They share codes, they share cargo – and Hong Kong Air Cargo is a big part of its business. Even aircraft leasing is integrated with Hainan Airlines.

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The airline currently operates 11 A320’s, 11 A330-200, 5 A330-200F, 10 A330-300, and 6 Airbus A350-900 with at least another 6 due.

Its current international route network includes LAX, SFO, Vancouver, Auckland, Sydney, Melbourne, Bali, Kuala Lumpur, Saipan, Bangkok, Hanoi Manila, Dhaka and Seoul. With a number of routes into Japan, and at least nine into mainland China. The Australia routes are seasonal.

It certainly needs to het a grip of its current predicament, rather than threaten to sue anyone who claims it might be in trouble, the same day the Hong Kong authorities announce they’re preparing for its possible failure. A little more calrity, and openness would put a lot of peoples minds at ease.

Its failure, should it happen, and I doubt it will as the Chinese Government won’t let it fail in my opinion, would be bad for Hong Kong. The airport for one is straining at near full capacity and Cathay Pacific with its subsidiary Cathay Dragon would have a too dominant slice of the market.

 

 

 

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