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Hong Kong Airlines

HNA Group sues company linked to subsidiary Hong Kong Airlines for more than HK$850 million as bad news piles up for struggling carrier

  • Court papers show group is seeking repayment from Hong Kong Airlines Consultation Service, a company owned by an ex-director of carrier
  • ‘Frictions among factions’ in group comes after spate of high-level resignations at city’s third-biggest carrier
PUBLISHED : Monday, 31 December, 2018, 4:49pm
UPDATED : Thursday, 17 January, 2019, 2:11pm

Debt-laden mainland aviation conglomerate HNA Group has sued a firm owned by a former director of its subsidiary, Hong Kong Airlines, for about HK$854 million in unpaid debt, just two weeks after news surfaced of an exodus of top executives from the city’s third-largest carrier.

HNA Group (Hong Kong) Investment is seeking the repayment of the debt issued in the form of a promissory note on ­December 30, 2010 to Hong Kong Airlines Consultation Service, ­according to a legal document made available Monday at the High Court.

According to the Companies Registry, Hong Kong Airlines ­Consultation Service is owned by Zhong Guosong, who was a director of Hong Kong Airlines until ­August 21 and who is also executive chairman of HNA’s other ­carrier, Hong Kong Express.

Call for Hong Kong Airlines to explain its finances, despite ‘here to stay’ vow

However, there was confusion yesterday after Hong Kong ­Airlines denied any link to the company.

“This lawsuit is not related to Hong Kong Airlines,” a ­company spokeswoman said, without offering any details on the company’s structure. “Hong Kong Airlines does not own Hong Kong Airlines Consultation Service.”

Meanwhile, Hong Kong ­Express also distanced itself from any involvement.

 

“HK Express has no relationship with Hong Kong Airlines Consultation Service and it is not appropriate to make any comment in terms of this company’s management structure and its financial issues,” a spokeswoman said.

Call for Hong Kong Airlines to explain its finances, despite ‘here to stay’ vow

The Post also contacted HNA Group for comment.

The lawsuit comes amid piling bad news for the beleaguered carrier. In December, its finance chief abruptly resigned after less than 18 months on the job, with no replacement appointed as yet.

Separately, six directors at Hong Kong Airlines have left since July. The company is said to be struggling to meet a deadline to repay HK$4.5 billion in bonds by January 20.

Among the departures was Tang King-shing, Hong Kong’s former police chief, who resigned late last month as vice-chairman of the carrier’s board, citing personal reasons. Chief financial officer Jacky Lui Jiaqi and chairman Zhang Kui have also left.

David Yu, adjunct professor of finance at New York University Shanghai, said he believed there was friction among factions in the group.

“HNA is known for its extensive related companies and varied shareholdings with other parties, and [Hong Kong Airlines] is no different,” he said.

“As with many companies that are not 100 per cent wholly owned, seeing eye to eye [all the time] is generally rarer over longer periods as shareholders have their own divergent views. In this specific case … the continued group restructurings will inevitably cause some friction among various shareholders.”

HNA’s debt declines for the first time, shrinking by US$8.3 billion

Soon after the resignations came to light, a Hong Kong Airlines spokesman said the changes would not affect its business and operations.

“We have recruited experienced leaders to join our management team. Hong Kong Airlines is also operating as normal and remain committed to offering our best service to customers who have chosen to fly with us,” he said.

Geoffrey Cheng, deputy head of research at Bocom International, said a promissory note was unsecured debt paper, likened to an IOU.

“Legally, in bankruptcy proceedings it could be strategy to secure more favourable position,” he said, explaining how the notes were used and what happened if repayment issues arose. “But such a move could trigger debt covenants of other instruments as well as borrowing.”