West Air, a Chinese budget carrier owned by the HNA Group, has persuaded some creditors to postpone receiving their bond payments, getting much-needed breathing space as its indebted parent company struggles for financial survival amid a national lockdown that has grounded all but a handful of weekly flights.
The carrier, operating 35 aircraft from its base in Chongqing in central China, persuaded bondholders to withdraw 292 million yuan (US$41.3 million) of put options, according to West Air’s statement to the Shenzhen Stock Exchange, where the bonds are traded. The 13-year old carrier eventually paid 235.9 million yuan of bonds on April 7, according to the statement.
The deferment is a relief for West Air’s parent HNA, one of China’s biggest global asset acquirers to emerge in the past two decades. China’s largest private-sector aviation conglomerate, HNA is under de facto state ward by the local authorities of Hainan province to trim its debt burden, as the government tries to prevent its financial collapse from hurting the broader banking system while the nation’s economic growth slows to its slowest pace in four decades.
HNA agreed in December to sell its stake in West Air for an undisclosed price to Chongqing Yufu Assets Management Group, a state-owned company based in the megacity and a minority partner in the budget carrier, giving Yufu at least 70 per cent of the airline. The deal, when completed, would give the municipal authority of Chongqing, with a population of 31 million, its first hometown carrier.
HNA’s sale to Yufu is a crucial step for the Chongqing municipality to help repay West Air’s debt, said a financial source familiar with the plan, declining to be named. West Air did not respond to requests for comment by South China Morning Post.
West Air is not the sole unit facing financial problems at HNA. Hainan Airlines, China’s biggest private carrier and the HNA Group’s flagship, has called a meeting of bondholders on Friday to delay payments on 750 million yuan worth of 270-day, 4.35 per cent notes that mature on April 17.
The airlines’ struggles to repay debt reflect the wider financial woes faced by China’s aviation industry, as the coronavirus pandemic has forced regulators to ground flights to deter air travel. The no-fly order has hit the industry hard, leading to 24.6 billion yuan in losses in February alone, of which 21 billion yuan was a direct loss by the country’s carriers, according to data by the Civil Aviation Administration of China (CAAC).
Worldwide airlines stand to lose a collective US$252 billion in passenger revenue in 2020, making it the biggest annual slump in civil aviation history, according to a forecast by the International Air Transport Association (IATA), the global industry guild.
West Air had 12.42 billion yuan in assets as of June 2019, little changed from a year earlier, while liabilities fell 1.5 per cent to 7.4 billion yuan, according to Wind’s data. Its debt-to-asset ratio fell by 1 percentage point to 59.58 per cent, while gross profit margin climbed 0.2 percentage point to 11.5 per cent.
China Chengxin International Credit Rating (CCXI) at the end of March lowered its ratings for West Air to AA- from AA.
Sign up now and get a 10% discount (original price US$400) off the China AI Report 2020 by SCMP Research. Learn about the AI ambitions of Alibaba, Baidu & JD.com through our in-depth case studies, and explore new applications of AI across industries. The report also includes exclusive access to webinars to interact with C-level executives from leading China AI companies (via live Q&A sessions). Offer valid until 31 May 2020.
More from South China Morning Post:
- Creditors seize HNA unit’s assets in Singapore, China and US after CWT missed payment deadline on US$179 million of loans
- Hainan-based companies are bouncing as HNA deal, tourism measures signal stronger policy support amid Covid-19 crisis
- HK Express deal exposes Chinese conglomerate HNA Group’s key assets as debt repayment pressure mounts
- HNA Group reshuffles managers as it unwinds its asset acquisition spree after co-founder’s death
- HNA Group’s fate hangs in the balance as coronavirus lockdowns scupper the Chinese asset buyer’s debt workout plan