Even by the volatile standards of the airline industry, the rise and fall of China’s HNA Group has been spectacular. Bankruptcy proceedings represent the latest step in the unraveling of the group’s ambitious global expansion, which could lead to the divestment of more of its aviation holdings.
HNA ran up massive debt as it acquired stakes in aviation companies across the globe and branched into other sectors. But its financial headaches—magnified by the COVID-19 crisis—have proved to be too tough for the group to address itself, and HNA’s creditors filed a petition on Jan. 29 to restructure the company through the bankruptcy system.
However, the HNA Group still holds an extensive airline portfolio with at least 14 carriers in China and Hong Kong. In some cases, these are majority owned, and in others it holds a smaller stake. The web of ownership links between the subsidiaries and the parent are extremely complex.
There will likely be significant interest in HNA’s airlines if it does seek investors or buyers for these companies. Some of the carriers are part-owned by provincial governments, and they may be willing to increase their stakes. China’s larger airline groups would no doubt be keen to add more carriers to their stables if the opportunity arises.
Hainan Airlines, the HNA Group’s cornerstone member, has a strong brand and an attractive domestic network. Nevertheless, the carrier is being dragged down by the group’s financial travails as well as the pandemic. The airline estimates a net loss of up to 65 billion yuan ($10.1 billion) in 2020, versus a 543.2 million yuan profit in the previous year.
Despite HNA’s contraction, China’s airline market remains fundamentally strong. Annual domestic and international growth was robust before 2020, and Chinese domestic demand has bounced back toward pre-pandemic levels faster than almost any other country. If HNA’s restructuring does result in more consolidation or mergers—and less capacity—this could help decongest the post-COVID-19 industry landscape.
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