HNA Group’s West Air unit gets breathing space to complete stake sale as creditors defer put option on bonds amid travelling slump

Iris Ouyang

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.

A buyout behemoth’s billions in pledged shares. SCMP Graphics

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.

A HNA Group logo on the building of HNA Plaza in Beijing on February 9, 2018. Photo: Reuters

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.

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