HNA Group: Big plans, but a long wait

This week, reports surfaced that the debt-laden HNA Group will seek to regain financial equilibrium by pursuing an IPO for its ground handler, Swissport, and by potentially offloading a mix of other assets. HNA claims that going public with Swissport will fuel Swissport’s long-term growth plans by providing additional liquidity. It remains unclear however, whether HNA intends to relinquish equity during the IPO, or simply plans to issue new shares.

In recent years, it has seemed like almost every major overseas acquisition and investment related to air cargo services or infrastructure has involved China-based conglomerate, HNA Group. Below are just a few of the blockbuster investments which comprise the Group’s US$40-billion debt-financed acquisition spree:

• October 2016: HNA Group completed acquisition of ground handling firm Swissport.
• January 2016: HNA Group subsidiary, Bohai Leasing acquired Ireland based lessor, Avolon, making Bohai the 4^th largest lessor by asset value.
• March 2017: HNA Group acquired an 87.5% stake in Hahn Airport near Frankfurt.

Few believed, however, that HNA could continue its rapid growth indefinitely.  All was manageable for the Group until many of the bonds it used to finance the acquisitions began maturing, and the repayment obligations for some of the conglomerate’s subsidiaries suddenly ballooned.

Late last year, HNA reportedly missed payments on some of its loans, causing three banks to put a freeze on HNA’s credit lines. Every HNA-affiliate company has come under scrutiny as a result, including Ireland-based Avolon which some investors worry, could be forced to bail out its cash-strapped parent. At a recent finance conference, Avolon’s CEO, Domhal Slattery reassured investors “The facts of the situation are that it is impossible for HNA to strip cash from Avolon because HNA would have to do that through Bohai,” and Bohai is listed on the Shenzhen Stock Exchange.

HNA, meanwhile, has maintained that its long-term financial position remains solid, and that it will still seek to unload assets valued at $5 billion this year. In recent weeks, the Group has also suspended six of its publicly traded companies, pending a “major announcement”, though it is unclear if the announcement will be related to the divestiture of assets, or if it involves a separate restructuring program.

Rumors have even circulated that HNA is reevaluating all of its assets, and that nothing is off-the-table when it comes to divesting. Even Hong Kong Airlines is thought to be under consideration, if the right price were offered.

Despite the headlines, the Group remains dedicated to the expansion of its airport logistics subsidiary, HNA Modern Logistics, which owns and operates cargo airlines and airports.  This week the company inked an agreement with the Chongqing Municipal Government to jointly build the Rochang Cargo Airport — a dedicated express-focused cargo airport. It can be assumed that HNA’s cargo airline affiliates would utilize the airport once operational. This is just of many ongoing projects currently in the works at HNA Modern Logistics.

One of HNA Modern Logistics’ grandest plans involves making the west-central Chinese city of Xi’an into a global multi-modal logistics hub. The Group has also placed a high priority on major fleet investments for many of its cargo airlines, including its newest startup carrier, Tianjin Cargo Airlines, which is expected to launch this year.

Large-scale network expansion for any of HNA’s Airlines would require the addition of many freighters. But for now, even though there are concrete orders, there is no concrete delivery timeline. HNA’s leasing subsidiary, Hong Kong International Aviation, has a long-standing order with Boeing for six 777Fs. These were originally intended for Hong Kong Airlines, and that may still be their ultimate home. Or they may go to Suparna, for operation out of Xi’an or Shanghai. But we would be surprised if HNA stopped there.

For now, we’ll continue waiting for HNA’s big announcement. Perhaps afterwards there will be more clarity. But then again, maybe not.

Those of you interested in learning more about emerging cargo gateways in China such as Chongqing, Xi’an and Zhengzhou, are invited to join us 23-25 April at the Mandarin Oriental Pudong in Shanghai for Cargo Facts Asia 2018. For more information, or to register, visit www.cargofactsasia.com