Exclusive | Hong Kong Airlines in talks with Air China, others for strategic lifeline after earlier white knights balked at HNA Group’s price
- Air China, the nation’s flag carrier, is among the parties in talks to begin due diligence on Hong Kong Airlines, according to sources familiar with the matter
- An earlier consortium comprising Citic Group, Wuxi Communications Industry Group and the family of former Hong Kong Chief Secretary Henry Tang failed to make headway because of a disagreement over pricing
Hong Kong Airlines Limited has turned to Air China and other parties for a strategic lifeline to reverse its financial woes, amid an impasse with a consortium of white knights after nearly nine months of fruitless negotiations, said three sources familiar with the matter.
“Hong Kong Airlines is here to stay and committed to sustaining our long-term growth,” the airline said in response to a query by South China Morning Post, adding that as a private company, it does not disclose its financial activities, or comment on rumours and speculation. “We are always open to strong strategic investors.”
Hong Kong Airlines, established in 2006, is 34 per cent owned by Frontier Investment Partner LP. HNA Group owns 29 per cent of the carrier, and former director Zhong Guosong has 27 per cent, while minority shareholders hold the remaining 10 per cent.
The airline began talks with the Citic-Wuxi Communications consortium last July as part of a debt workout plan led by the policy lender China Development Bank to untangle the debt at HNA Group.
The consortium initially planned to inject at least 2 billion yuan (US$288.52 million) of capital into Hong Kong Airlines, and assume part of its debt, according to sources familiar with the plan. Wuxi Communications came very close to a deal, to the extent of drawing up a draft agreement, two sources said. However, the takeover failed as Wuxi Communications ultimately balked at HNA Group’s asking price for the controlling stake in Hong Kong Airlines, they said.
Tang, the former Chief Secretary of Hong Kong, confirmed on March 6 to the Post that his family had “walked away” from the takeover, declining to elaborate. An official at Wuxi Communications, when reached at the company’s office, declined to comment.
HNA Group, which began as a regional airline based in the Hainan provincial capital of Haikou, went on a global shopping spree between 2015 and 2017 – mostly fuelled by loans – for assets.
China Development Bank, which is sponsoring and controlling the debt workout process, still favours the original bailout by Wuxi Communications, giving the industrial group a chance to prevail, they said. China Development Bank declined to comment in Beijing.
A new white knight for Hong Kong Airlines would require approval by the city’s government, under a legal requirement for any change of shareholding exceeding 10 per cent in an airline to get the local authority’s nod.
It’s an opportunity for Air China to extend its stake outside the mainland. The carrier already owns 29.9 per cent of Cathay Pacific Airways, as the second-largest shareholder of Hong Kong’s hometown carrier behind Swire Pacific Group’s 45 per cent. Air China declined to comment.
“It will be a positive move for Air China or other state-owned airlines to take over Hong Kong Airlines as the country can support the development of the new routes related to the mainland cities,” said Clement Chan, managing director of BDO, which is the fifth-largest accounting firm in Hong Kong.
“The current timing will be a buyer’s market as the airlines cannot stand firm to demand a high price as the Covid-19 has led the transport and tourism industry gone into wintertime. But for the longer term, the airlines business will be bounced back when the outbreak will be under control.”