HNA Group

Some good news for embattled Chinese conglomerate HNA as airline unit sees profits rise

Uncertainty still hovers around Hainan Airlines however as competition heats up, while its parent still wrestles with huge debts

PUBLISHED : Thursday, 22 March, 2018, 10:30pm
UPDATED : Thursday, 22 March, 2018, 11:34pm

Hainan Airlines Holding, the flagship aviation unit of Chinese conglomerate HNA Group, reported a 5.9 per cent profit rise for 2017, but uncertainty remains over the outlook for the carrier as its parent wrestles with huge debts.

The Hainan province-based airline said late on Thursday that it earned 3.32 billion yuan (US$524 million) last year on revenue of 59.9 billion yuan, in line with a median forecast of 3.32 billion yuan in a Bloomberg survey of analysts.

“Uncertainty still revolves around the airline,” said Ivan Li, an asset manager with hedge fund group Loyal Wealth Management. “A potential asset restructuring is expected to affect the company’s fundamentals heavily.”

Hainan Airlines was founded by Chen Feng in 1993, and counted US billionaire George Soros among its early investors. Its parent, HNA, emerged as a powerful conglomerate that went on an aggressive spree of asset purchases around the globe, including taking stakes in hotel group Hilton Worldwide Holdings and in Deutsche Bank.

But HNA is now under pressure to sell assets to cut its huge debt levels after coming under regulatory scrutiny at home and abroad. Media reports have also said that some banks had frozen unused credit lines to HNA units.

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Shares of Hainan Airlines have been suspended from trading since January 11 after it announced a potential asset restructuring. The company did not say when trading would resume.

“High debt levels remain a key issue for Hainan Airlines to sort out after its active acquisitions of domestic airline firms over the past years,” said Wang Feng, chairman of Shanghai-based financial services firm Ye Lang Capital. “The rising popularity of Hainan Island as a tourist destination is giving the company a boost to improve business.”

Hainan Airlines weighs asset restructuring as parent HNA charts new course

Hainan Airlines currently has controlling stakes in about 10 regional airlines including Tianjin Airlines and Shanxi Airlines. The company operates 17 international and regional routes and carries about 45 per cent of all visitors arriving in Hainan by air.

Its debt-to-assets ratio stood at 62.52 per cent at the end of 2017, 8.34 percentage points higher than at the end of 2016. As of the end of December last year, its outstanding debts were 123.4 billion yuan. It was the worst performer among the mainland’s eight listed air carriers in terms of return on equity last year, according to Bloomberg.

Earlier on Thursday Reuters reported that parent HNA had paid more than 3 billion yuan this week to China National Aviation Fuel Group to settle an outstanding jet fuel bill for the airline.

The carrier also faces increasing pressure from domestic rivals, particularly bigger ones such as China Eastern Airlines and China Southern Airlines, after industry regulator the Civil Aviation Administration of China said in January that it would allow airlines to set their own prices for more than 300 routes, including the profitable Beijing to Shanghai route.

“Hainan Airlines is not bad as an air carrier,” said Loyal Wealth’s Li. “But as bigger competitors grow on a fast track with improved services and expanded networks, it will certainly be a difficult job to maintain market share. More importantly, the airline and its parent are under pressure to repay debts.”