Analysis: Will lessors retrieve aircraft in HNA restructuring?
The restructuring of Hainan Airlines should prove beneficial for the company, although creditors and lessors may face challenges, observers of HNA Group's bankruptcy process have told Airfinance Journal.
“There will be fleet downsizing in restructuring. Definitely there will be an excess of aircraft which compound the situation because quite a lot of the fleets have been grounded,” Subhas Menon, director general of Association of Asia Pacific Airlines, tells Airfinance Journal.
On 30 January 2021, Shanghai-listed Hainan Airlines applied to Chinese courts for restructuring alongside two other listed companies of the HNA Group: HNA Infrastructure Investment and CCOOP.
Apart from these three companies, HNA-affiliated companies to have filed for bankruptcy and restructuring by creditors included Grand China Airlines, Air Chang’an, Shanxi Airlines, Lucky Air, Fuzhou Airlines, Urumqi Airlines, GX Airlines, Kehang Investment, HNA Technology, HNA Capital and HNA Industry.
Jordan Yang, a partner of AllBright Law Offices in Beijing, sees no benefit from a Hainan Airlines liquidation, and tells AFJ restructuring is a better solution.
According to a report from Reuters, Hainan Airlines could introduce new strategic investors amid its ongoing restructuring.
A strong route network, high brand value and an experienced management team as well as restructuring efforts by China’s fourth-biggest carrier were among the reasons cited.
“Restructuring means that there is a high probability that strategic investors will be introduced. Funding and operation will also be considered and adjusted. How to rejuvenate the main aviation business should be the direction of restructuring,” says Zhou Yao, a partner of Dentons in Beijing.
Hainan Airlines is aiming to remain independent after the restructuring and potential investors have shown strong interest in the airline, according to Chinese financial publication Caixin.
“It is likely that Hainan Airlines will become a state-owned carrier. Creditors may become shareholders, and equity of current controlling shareholders may be diluted in the process of restructuring,” says Yang.
“Some creditors still want to continue to fulfil their contracts rather than retrieving their aircraft because it is hard for them to remarket their aircraft in the market now, especially under the Covid-19 pandemic,” adds Yang.
At least 20 lessors are involved in Hainan Airlines’ restructuring programme.
AFJ’s Fleet Tracker indicates that Bocomm Leasing, GECAS, Avolon, Tianjin Bohai Leasing and CDB Aviation are the most impacted lessors.
Among them, Bocomm Leasing, GECAS and Avolon have more than 40 aircraft with HNA carriers, while Tianjin Bohai Leasing and CDB Aviation have more than 20 aircraft.
Zhou does not think that large-scale aircraft lease terminations will happen due to the restructuring. “If their fleet management efficiencies could be improved, the reduction of fleets is beneficial, not negative,” notes Zhou.
She adds: "If resources are concentrated on the main business, I think it is a good opportunity for Hainan Airlines to restructure."
Earlier this week, the part-owner of Avolon, Japan's Orix Corp, suggested that HNA's bankruptcy proceedings may result in a positive outcome for the lessor and its stakeholders.
Orix and HNA-affiliated Bohai Leasing are the owners of lessor Avolon in a 30-70 joint venture.
Bohai Leasing is not directly under the bankruptcy petition. Its parent HNA Capital Group, however, is part of the petition, and Bohai has disclosed that there are risks with regards to potential decisions made by the courts in Hainan Province, which have yet to accept HNA’s bankruptcy petition.
The head of Orix’s treasury went on to note that the corporation’s exposure to HNA subsidiary Hainan Airlines is “minimal”.