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Hong Kong Airlines

Hong Kong Airlines shrugs off cash flow concerns and says ‘it’s business as normal’ despite being under growing financial strain

  • Troubled carrier had delayed delivery of new planes, seen a host of senior managers quit and experienced trouble paying staff
  • But in stock exchange filing the airline says it will be able to pay US$550 million debt on time
PUBLISHED : Friday, 11 January, 2019, 3:24pm
UPDATED : Thursday, 17 January, 2019, 2:11pm

Hong Kong Airlines has insisted it will be able to meet its financial obligations, despite sources saying it had been under growing strain over the past 12 months.

Over that time the company has delayed the delivery of expensive new planes, reportedly paid staff late, and cut back on perks for its employees at hotels, the sources said.

Against the backdrop of what appeared to be mounting cash-flow problems, the Post reported on Wednesday that the government was working on a contingency plan should the airline collapse during the Lunar New Year in February, one of the busiest travel periods for airlines in the region.

However, in a statement released on Friday, the airline said that it “has been and will continue to operate as normal”.

“We have not been informed or involved in any contingency plan as reported by the South China Morning Post on January 9, 2019. We have no further comments to add to this issue.

“For the coming [Lunar] New Year holidays, Hong Kong Airlines is expected to operate close to 1,080 flights and fly more than 224,000 passengers between February 1-10, 2019, representing a 4.2 per cent increase in the number of passengers carried over the same period last year.”

One of the financial concerns regarding the airline surrounded a US$550 million debt which it had been suggested the company would struggle to pay by January 20. But, in a separate filing to the Hong Kong stock exchange, by the company’s bondholder Blue Sky Fliers, the airline said it would meet that obligation.

The bulk of the money is reportedly to be lent by China Development Bank, the biggest creditor of the airline’s parent company, HNA.

In a public statement issued on Wednesday, the carrier said: “We would like to thank our customers and business partners for their ongoing support and confidence in Hong Kong Airlines. 2018 has been an extraordinary year for the airline as we carried over 7.64 million passengers.

“We also value the good relationship with our service providers and communicate with them regularly to address outstanding issues.”

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Although the airline did not go into specifics about the “outstanding issues”, this was the first time the company had acknowledged that it was facing problems.

Meanwhile, the Post spoke to a range of employees who disclosed specific details of the company’s issues, and painted a picture of a carrier that was not on an even keel, despite its insistence that it is business as usual.

Last October, cabin crew’s monthly salary payments were delayed by one or two days, and flight attendants who earned commission did not receive their money until November 14.

A cabin crew member, who could not be named for risk of losing his job, said: “Later than seven days, I guess [the company] should pay us interest.”

In addition, payments to pilots changed over the past several months. After switching banks, a source said, pilots who expected to be paid at 9am on the day their salary was due typically received it several hours later.

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“This caused slight concern for the pilots. However, all monies were still received the same day,” a senior company insider said.

The airline confirmed there had been a delay in salary payments, but blamed it on its unnamed US bank.

In a move to save money, captains operating Airbus A330 aircraft were offered voluntary unpaid leave on a temporary basis, two other sources confirmed, as the company had a surplus of that type of plane. It is not known how many pilots took up the offer.

In response, the airline said the leave had been offered to “provide opportunities for them [the captains] to spend more time with families, or pursue personal interests”.

In the most recent example of belt-tightening, cabin crew were told that as of January 1, they would not be eligible for free food at hotels in Taipei or Sapporo during overnight stays, according to documents seen by the Post.

The company also saved money by changing hotels for aircrew, from the Crowne Plaza to a Holiday Inn in Beijing, and to an independent Bangkok hotel from the Novotel at the airport.

On Friday, the airline said the move in Bangkok had been necessary because of “large-scale renovations at our previously appointed hotel”.

However, there have been other warning signs of financial strain. Payments owed by Hong Kong Airlines to suppliers had typically been paid “at the very last minute”, according to people with knowledge of the situation, with some businesses waiting 90 days before invoices were settled.

Early last year, the mood was different. The airline was buoyant, and flights to San Francisco were launched, capping off expansion into North America, after the launch of routes to Los Angeles and Vancouver in 2017. A New York route was expected to be unveiled towards the end of last year, along with one to London, but neither materialised.

The anticipation of new routes prompted the company to increase the size of its cabin crew to almost 2,000 employees.

Within its passenger fleet, the airline has 11 single-aisle A320 Airbus aircraft and 21 larger twin-aisle A330 planes, plus six A350-900s.

A mismatch in Airbus data released this week showed the airline has a further three A350s and one A330 stored in France waiting to be paid for. These are worth a combined HK$9.5 billion at retail price, before discounts are included.

A study of its needs for an airline of its type, combining regional and long-haul flights, suggests the company has an excess of as many as 650 flight attendants.

“We have too many crew members,” a flight attendant said.

But, an internal memo to crew on Tuesday addressing the numbers said: “We do not have a surplus of manpower where we can offer unpaid leave or produce a massive lay-off plan for cabin crew.”

Still, that might not be the end of the story. Another memo for overseas flight attendants said their HK$5,000 a month housing allowance would be changed to reflect length of service.

Now, new staff members will get HK$7,000 a month housing allowance, there will then be a sliding scale, with those who have worked for the carrier for seven years or more getting nothing.

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On Friday the company attributed these changes to “crew feedback”, and said the time period corresponded to when overseas crew members would be eligible for permanent residency in Hong Kong.

Insiders said the company could survive, but needed new leaders to tackle the situation head on.

“Can Hong Kong Airlines get through this? They have a lot of great people and I believe that with the right leadership they can survive and thrive,” a management source, who was not permitted to speak publicly, said.

As the threat of collapse hovered over the airline, boardroom members and senior managers left and the company’s public image took a beating after insurer Blue Cross withdrew its policy covering travellers in the event the carrier went bust.

“Based on this list of actions, it shows the company is being more aggressive with its financial management by increasing efficiencies,” said David Yu, adjunct professor of finance at New York University Shanghai.

He said such measures came with benefits such as increased cash flow, but they would be effective only up to a certain point.

But, Friday’s filing to the stock exchange suggests all is not as bad as first feared. The airline’s comments were followed by a statement from Blue Sky Fliers, which said: “In the absence of unforeseeable circumstances and after taking into account its business prospects, internal resources and available credit facilities, their business operation remains normal as at the date of this announcement.”