Chinese conglomerate HNA Group is asking the Chinese province of Hainan for assistance as it faces a slowdown in its businesses as a result of the coronavirus outbreak. According to Reuters, the provincial government of Hainan has been asked to lead a work group with the goal of “resolving its increasing liquidity risks”. HNA Group is the parent company of both Hainan Airlines and Hong Kong Airlines.
According to the South China Morning Post, HNA Group’s liquidity will be managed by a committee made up of representatives from at least two Hainan government units. According to the company’s Saturday statement, these units will be the country’s civil aviation administrator and China Development Bank.
HNA Group not only owns Hainan Airlines and Hong Kong Airlines, but also has assets around the world associated with hotels, banking and real estate. Recently the group has come under heavy pressure to repay debts that have reached as high as US$108 billion.
The Haikou-based conglomerate embarked on an assets-disposal program in the last year. However, the group says its debt impairment plan has been put in danger by “increasing liquidity risk”. This is completely due to the current coronavirus outbreak.
Some news reports indicate that the Chinese government may take over HNA and sell off its airline assets. This act would be a result of the ongoing coronavirus outbreak, which has reduced the conglomerate’s ability to meet its financial obligations.
Sources say that state carriers Air China and China Eastern Airlines are prepared to hold talks about HNA’s assets. This is from a source with direct knowledge of the matter.
HNA Group actually first grew out of Hainan Airlines, which began in 1989 as a regional carrier. Its main operations saw its aircraft flying between the provincial capital of Haikou and mainland China.
According to Reuters, HNA Group was once one of China’s most aggressive firms in acquiring stakes in foreign companies. In fact, the company spent US$50 billion on a global acquisition spree. This once included stakes in Deutsche Bank and Hilton Worldwide.
However, these aggressive moves attracted scrutiny from the Chinese government and other overseas regulators. As a result, it has been letting go of many of these purchases over the last two years. Consolidating its focus and efforts, it remains dedicated to its airline and tourism businesses. After selling off many of its purchases, HNA’s total debt by June 2019 had fallen by 30% to 525.6 billion yuan (US$75 billion).
We’ve seen some consolidation in the aviation industry in other parts of the world – mainly Europe. However, it makes sense that with intense competition and the coronavirus at full strength in the region, China’s aviation sector would be at prime risk for consolidation as well.
Depending on how long the outbreak will last, it may well come down to ‘survival of the fittest’ for airlines in China and around the world.
Do you think HNA Group will be able to weather this storm and stay afloat through the coronavirus outbreak? Or will it fold and have its assets liquidated? Let us know in the comments.