HNA’s purchase of US$450m stake in Brazilian airline expands its global footprint

HNA Group is going to become the largest shareholder in Brazil’s low cost carrier Azul Brazilian Airlines with a US$450 million acquisition.

The aviation and shipping conglomerate has been on a global spending spree this year, culminating in surprise purchases totalling nearly US$1 billion in the past two days.

The parent company of Hainan Airlines announced on Tuesday that it would forge a strategic partnership with and acquire a 23.7 per cent interest in the third-largest airline in Brazil to tap traffic growth between the world’s two fastest-growing aviation markets. This comes a day after HNA Tourism, a subsidiary of the group, announced it was making a US$500 million strategic investment to become the largest shareholder in Nasdaq-listed Chinese online travel company Tuniu.

“Considering Brazil’s current macroeconomic situation, [the investment] demonstrates that we have a winning business model and that the HNA Group, as a large investor, has absolute confidence in Azul’s team,” said Azul’s founder and chief executive David Neeleman, who is also founder of US low-cost carrier JetBlue. The investment made Azul the airline with the highest valuation in the Brazilian market at more than 7 billion real (HK$14.5 billion), Neeleman said.

Neeleman has held off three listing attempts for his airline since 2013 as the Brazilian economy deteriorated. According to a filing to the US Securities and Exchange Commission in October 2014 for the most recent attempt, which was eventually withdrawn, Azul made a net loss of US$25.8 million on revenue of US$1.7 billion for the first nine months of 2014.

“HNA Group is committed to expanding in the airline industry through strategic investments in companies with strong market positions and excellent management teams,” group president Adam Tan said.

It said the two airlines would cooperate in the development of code-sharing, new route development, and the expansion of loyalty participation programmes. Neither has any operation in the other’s home base at the moment.

Azul, with a fleet of 145 planes, only recently began international flights within the Americas. It will be the seventh airline outside the mainland the HNA Group has a stake in, after Hong Kong Airlines and Hong Kong Express in Hong Kong, Aigle Azur in France, Comair in South Africa, Africa World Airlines in Gana, and myCargo in Turkey, according to public records.

David Yu, head of Asia at aviation consultancy IBA Group, said: “this stake acquistion continues to expand HNA’s alliance footprint and strategy of buying feeder airlines with regional access around the world. But Azul’s currently large Embrarer regional jet fleet may not be in sync with the HNA Group’s fleet rationalisation.”

Haikou-headquartered HNA has been on a spending spree this year, capped by its subsidiary Bohai Leasing’s landmark US$7.6 billion acquisition of Irish aircraft lessor Avolon.

“The Tuniu acquisition further fills holes in HNA’s offerings for the entire tourism supply chain from online to offline,” Yu said.