HNA Bankruptcy And Restructuring – What’s The Latest?

One of China’s best-known companies has its back against the financial wall. The HNA Group is a big name in the airline industry, having grown out of Hainan Airlines. But now, the once big-time conglomerate has entered into bankruptcy amid spectacular claims of multi-billion dollar embezzlement and misappropriation.

HNA Group, the owner of Hainan Airlines, is facing bankruptcy and claims of embezzling funds. Photo: Getty Images

The HNA Group owes around US$110 billion

In late January, the HNA Group received a formal bankruptcy notice from the Hainan High People’s Court following creditors beginning action against the company over unpaid debts. Reuters reports the HNA Group owes around US$110 billion, and HNA founder and Chairman Chén Fēn is now on a Chinese Government blacklist because of this.

While Hainan Airlines is HNA Group’s best-known airline, they have stakes in multiple other airlines. The list includes Tianjin Airlines, West Air, Lucky Air, Suparna Airlines, Fuzhou Airlines, Urumqi Air, Beibu Gulf Airlines, Air Changan, and Guilin Airlines.

But it’s not only airlines that interested HNA. The Hainan-based conglomerate liked buying things. According to The Wall Street Journal, they spent US$40 billion between 2015 and 2017. Among other things, HNA bought a stake in Hilton Hotels and Deutsche Bank. The question is, where did all that money come from?

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One of HNA’s airlines, Suparna Airlines. Photo: N509F2 via Wikimedia Commons

Hainan Airlines milked for funds

It seems a great deal of the money came from Hainan Airlines. The airline was the HNA Group’s flagship airline with significant international operations. Before the travel downturn, Hainan Airlines was a lucrative source of revenue for HNA. There’s nothing wrong with that.

The problem is the parent group drained about US$9.3 billion from Hainan Airlines in the form of direct funding and loan guarantees. The bigger problem for the people who authorized the transfer of funds is that the money belonged to Hainan Airlines, not the parent company.

Fortunately, Hainan Airlines is still in the air. Management at the airline appears to be scrambling to distance Hainan Airlines from its disgraced parent. Yesterday, Hainan Airlines announced plans to transfer over US$11 billion worth of debt back to the HNA Group, getting it off the airline’s books. Two other listed HNA companies are also making aggressive moves towards their parent company.

What’s going to happen to HNA? The provincial Hainanese Government effectively took control of HNA last year. Their bean counters have spent the last 12 months trying to unravel HNA’s byzantine array of 2,000 odd subsidiaries, affiliates, and shell companies.

Parent HNA Group milked Hainan Airlines for nearly US$10 billion. Photo: Vincenzo Pace / Simple Flying

China’s first airline group bankruptcy

While bankruptcies impacting airlines happen elsewhere, this is the first big airline group bankruptcy in China. It raises questions about rationalization and capacity in China’s domestic aviation market. That market is almost back to 2019 levels.

But if the parent company’s woes force Hainan Airlines to curb or curtail its operations, there are broader questions regarding capacity reductions and a flood of aircraft getting returned to lessors. This will further depress an already depressed leasing market.

It is expected a Chinese state-backed company will take control of HNA after bankruptcy proceedings wrap up. Existing debtors may be asked to swap debt for equity in a new company. Senior HNA management officials may get some attention from Chinese law enforcement. Non-aviation assets are expected to be disposed of. It will mark a return to its roots for a re-birthed HNA Group, focusing on running airlines. In the long run, that may be a good thing.