110 AUSTRALIAN AVIATION
Virgin Australia and Hainan
Airlines announced a new
codeshare agreement in June
covering Hainan China-Australia
flights and Virgin domestic
services.SETH JAWORSKIW
ho controls Hainan Airlines,
the flagship operation of
China’s HNA Group, which
paid A$159 million for a 13
per cent stake in Virgin Australia back
in 2016?
That’s the question that has been
puzzling observers in recent times
as HNA, based on Hainan Island –
China’s very own version of Hawaii- attempts to navigate its way through
a morass of debt, the result of a
A$65 billion acquisition spree over the
past three years.
It’s something that has been at
the centre of speculation for months,
including rumours of impending
bankruptcy and failure to pay wages
to staff at some of its dozens of
subsidiaries.
Apparently, Hainan, China’s fourth
largest airline, is no longer under the
control of HNA... and that’s official.
Xu Jun, the carrier’s president, has
told investors that Hainan’s State-
owned Assets Supervision and
Administration Commission (SASAC)
now controls the airline through its
stake in Grand China Air Co Ltd.
Grand China, headquartered in
Beijing, was formed in 2007 under the
initiative of Hainan Airlines itself to
merge its operations with other HNA
Group subsidiaries Shanxi Airlines,
Chang An Airlines, and China Xinhua
Airlines. It is, you might say, a parent.
What has been happening at
Hainan has, until now, been rather
opaque, to say the least. What is
known is that HNA’s ambitious
investment strategy has been
unravelling and it is now undertaking
a major restructuring to raise cash by
selling equity and real estate assets
amid a government crackdown on
debt among some of the country’s
biggest conglomerates.
Since the start of this year, it has
agreed to sell close to A$20 billion
worth of real estate in Australia, New
York and Hong Kong, along with
shares in Deutsche Bank and Hilton
Worldwide Holdings. Significantly,
however, none of its aviation-related
assets have been put on the chopping
block.
While Xu told investors during a
conference call the SASAC was now in
control, it seems that isn’t the end of
the matter and that the restructuring
could lead to a further change of
hands.
“The company is currently
communicating, negotiating and
proofing its asset restructuring plan,
and there is a possibility that the
actual controller of the company
could change. It will ultimately be
determined after the plan is approved
by the relevant authority,” he
explained.
Whatever happens, the
developments mark a significant
change in the history of Hainan
Airlines. How long that will take is
uncertain. The airline was founded
by Chen Feng, a former government
official who went on to establish the
HNA Group and now chairs both
companies. Early investors in the
airline included George Soros, the
billionaire financier who at one point
controlled a 25 per cent stake in the
carrier. He has since sold out.
Of course, the reason this is all
relevant to Australia is HNA’s interest
in Virgin Australia and whether
what is happening actually has any
meaning.
The answer, at least for the time
being, is probably “no”. It seems
likely that whatever eventuates and
whoever controls the airline they will
want to maintain profitable networklinks. And Virgin chief executive
John Borghetti doesn’t seem to be
having any sleepless nights over it,
although he will certainly be keeping
one eye on developments. He told this
columnist recently he is more than
happy with both his Chinese partners- the HNA Group and the Nanshan
Group, a privately-owned Chinese
conglomerate whose interests include
Qingdao Airlines, both of which now
own around 20 per cent of Virgin.
“I have no concerns. The
relationship is exceptionally good
with both Chinese partners and HNA
having been instrumental in assisting
us through Hong Kong Airlines to
operate through Hong Kong. We
wouldn’t be doing it if we didn’t have
them as a partner because we wouldn’t
have feed,” he said.
“All I can say from our side is that
they have proved to be exceptionally
good shareholders, very supportive.”
With flights already operating from
Melbourne to Hong Kong, Virgin
will launch from Sydney to Hong
Kong in July. Then there is the new
codeshare agreement with Hainan
Airlines, covering Hainan codesharing
on Virgin Australia domestic flights,
and Virgin placing its code on Hainan
flights to Sydney, Melbourne, Brisbane
and Cairns.
And VA also recently tied up a
long-term agreement with HNA-
owned Gate Gourmet, the global
airline caterer.
“They have other companies that
we use so the synergies and benefits
are good. Nanchang likewise are a
terrific partner and we are very pleased
to have them. I do think we are quite
privileged to have them with us.”
Borghetti is enthusiastic about how
well sales for its Hong Kong flights are
going.
“To a large extent it’s because of
Hong Kong Airlines and the HNA
Group. I think that had it not been for
them we wouldn’t be going to Hong
Kong.”
Whether or not there is a
shareholding the codeshare
arrangements with Hong Kong
Airlines and Hainan Airlines will
remain critical to both sides as the
number of Chinese visiting Australia
and the number of Australians visiting
China continues to surge.
‘The answer,
at least for
the time
being, is
probably
“no”.’
House cleaning
HNA Group is restructuring, but what does it mean for Virgin Australia?
ASIA WATCH
TOM BALLANTYNE