Hainan Airlines Being Taken Over By Government Task Force

Filed Under: Hainan

In mid-February I wrote about how signs were pointing to the end possibly being near for Hainan Airlines, which I consider to be mainland China’s best airline, by far.

Hainan Airlines had been in especially bad financial trouble for a couple of years, as parent company HNA Group was selling off assets. In mid-February we learned that the government was in talks to take a controlling stake in HNA Group (Hainan Airlines’ parent company), as the company is unable to meet their financial obligations.

They were in a terrible situation before, but the coronavirus situation has understandably made the situation exponentially worse.

Well, it looks like that’s now becoming a reality. HNA Group will essentially be taken over by the government of the Hainan province in order to try and be rescued. HNA Group posted the following on their website (translated with Google Translate):

Since the outbreak of liquidity risk in late 2017 , with the support of all parties, HNA Group has actively carried out “self-rescue” but failed to completely resolve the risk. Affected by the epidemic of “new crown pneumonia” at the beginning of 2020, the liquidity risk will increase.

In order to effectively resolve risks and safeguard the interests of all parties, at the request of the Group, the Hainan Provincial People’s Government has recently led a joint effort with related departments to set up a “Hainan HNA Group Joint Working Group.” The joint working group will fully assist and make every effort to advance the Group’s risk management work.

The leader of the joint working group is Gu Gang, chairman of Hainan Development Development Co., Ltd., and the executive deputy leader is Ren Qinghua, director of the management committee of Hainan Yangpu Economic Development Zone. Li Shuangchen, Cheng Gong, deputy director of the Credit Management Bureau of China Development Bank.

As of now we don’t know what this means for the future of Hainan Airlines:

  • Will the government try to help Hainan Airlines remain independent?
  • Will the government try to merge Hainan Airlines into another airline, whether state owned or “private?”
  • Will Hainan Airlines just end up being liquidated, assuming there’s no other practical path forward?

As of now the airline is continuing to sell flights (well, flights for the routes they haven’t canceled), so for now we’ll have to mark this as “developing.”

(Tip of the hat to @DominicusHKG)

Comments
  1. I don’t know why. The airline should go bust, another carrier will buy the assets and hopefully run a better airline. Now, the government will just throw cash at the project wile employing everyone’s family members.Its typical socialism failure.

  2. This is just the beginning of a massive decline in world travel. Hotels and airline are about to be hit pretty hard after some greats years. No way all of the airlines survive the corona outbreak. Think we will see more airlines fold or merge and continue to cancel as many flights as possible. It seems like several airlines were already at the brink before the outbreak and the virus is the final straw. Is this the end of the golden age for travel? Guess airlines are in no rush to get the 737 Max in the air anytime soon now or take deliveries of new planes.

  3. Great. Three apparatchiks with no experience running an airline will start running an airline in the midst of a national medical and economic crisis.

    I think we know how this ends.

  4. “another carrier will buy the assets and hopefully run a better airline.”

    More profitable, maybe. Better? Hard to say, the consensus seems to be that the onboard quality is pretty good (and not just in the “best of Chinese airlines” way).

    “Now, the government will just throw cash at the project wile employing everyone’s family members.Its typical socialism failure.”

    I realize “socialism” is a trigger word for people of your ilk, but wtf does it have to with do here? I don’t think you know what socialism really means…

  5. What? @Aaron, so I guess Italy is currently a socialist country?’I think HNA group has a better chance than state-owned Alitalia with billions of dollars wasted and now who really wants a stake with them anymore.

  6. @Aaron oh yeah. Sorry about that man. My bad.

    What? @ Ernest Alleva so, I guess Italy is currently a socialist country?’I think HNA group has a better chance than state-owned Alitalia with billions of dollars wasted and now who really wants a stake with them anymore.

  7. The Chinese government admitted before the virus crisis that their airlines were losing over $3 billion/year on international routes. They knew it was not sustainable.

    The virus crisis will provide an opportunity for China to restructure its airlines. There were too many airlines flying too many routes, many of which existed to get around restrictive treaties on the amount of air service between China and other countries.

    Most rumors about the Hainan group of airlines is that they will be carved up by China’s big 3 – Air China, China Eastern and China Southern. There is very little reason for any of those 3 to maintain the brand names of Hainan group airlines if the company is carved up.

    The measure of success for whether airlines remain is profitability and the ability to exist without subsidies, not the level of passenger service an airline provides. US Open Skies agreements are based on non-subsidized aviation.

    It is also likely that private sector airlines in many parts of the world will get some sort of subsidies in the next few months. The argument against the supposed subsidies that US airlines received post 9/11 will be turned on other countries.

    Airlines in most of the world operate under the free enterprise system which means that those that fail will result in reduced capacity. China will have to figure it all out for its subsidized airlines but the chances are low that they will reinstate all of the capacity that existed pre-covid 19.

  8. Stop saying Hainan is best airline in China. If they’re the best why do they fail? Best in products? Maybe. But not best for investors. Xiamen probably the most optimal. They make ok profit and deliver good products as well.
    Those who called government intervention socialist probably never flew singapore, or emirates or other great airlines in the world. More government ran airlines are provide better products than publicly owned airline companies.

  9. I was scheduled to fly Hainan Airlines from HAK to BKK in early February, but the trip was scrapped due to CV. Although Hainan Airlines promised a full refund, it was like pulling teeth (multiple calls with a hour or more on hold). I finally challenged the charge with Citi, and Citi effectively processed the “refund” for me.

    Despite the frustrations, I was hoping that Hainan Airlines would not disappear in case my business trip is ever re-scheduled, as it is the only airline that flies HAK to BKK non-stop. Connections turn that 2+ hour flight into at least a 6+ hour flight.

  10. Majority of Hainan Airlines shares is already owned directly or indirectly by Hainan government before HNA group is taken over. Does not look like any change for HU.

    From Wikipedia,
    Shareholders
    As of 31 December 2016, the Hainan provincial government owns 53.67% of Hainan Airlines’ shares through Grand China Air Holding Company, which is controlled by the investment arm of the Hainan government.[22]

  11. @MARSH,
    i totally agree, massive and painful decline is coming, I doubt all will survive. Some deserve it.
    After hundreds of nights just at that major Hotel in Germany, no recognition, no upgrade, lousy room. It is time for Hotels to relearn some humility.
    A few months of low occupancy, a few cutbacks in manager ranks and the remaining few will learn to be customer friendly.

  12. I’m going to guess that the government is going to scale HU back to primarily serving Hainan Island. HX is dead and the Beijing and Xi’an hubs are going to be sold off.

  13. In my opinion, my guess is that whatever is left of HX will be absorbed into CX (with the leased stuff returned to lessors), whilst the VA stake may probably end up with another Chinese firm, whether if it’s an Chinese investment company or one of the “CN3” (e.g CA, MU, CZ) is yet to be clear by “default” is yet to be clear.

  14. They’re asking.

    Right now CA is being given first right of refusal for CX. Because MU is already taking over their operations in PEK, so it skips to CZ. In terms of outbound, CX KA is the largest Chinese carrier, followed by SQMITR. With CZ internationall network so scatterbrain at CAN, I expect it will continue to remain so, and they could have the opportunity to build on top of what CX has already established.

    If CX is taken by CZ, then CA will be in Hong Kong-MFM and Hong Kong-SZX while oneworld builds their hub in Hong Kong-HKG and Hong Kong-CAN. WIth Hong Kong-MFM so desperate to give away the goods, I bet MFM will host Starlux (Etihad equivalent), with Air Macau rebranded to CHINA Smile (similar brand to THAI Smile) and NokScoot. Then HU (Qatar equivalent) will be shut down, having had its assets divided to other oneworld equity members, and aircraft top up the rest.

    QSuite, Quisine, QEconomy become brands of oneworld, becoming the hallmark and signature product in oneworld members. Privilege Club can either replace the messy Avios or become oneworld’s PPS Club.

    Similarly, Fortune Wings Club infrastructure will replace the horrible PhoenixMiles, and become Asia’s MIles & More while KrisFlyer (taking over Enrich infrastructure) becomes the asian Flying Blue

  15. Around the globe government support of airlines is on the rise. Even in the UK, the government helps flyBe (BE) to survive … and the UK government is probably one of the most market friendly ones. Therefore, I’m really not sure if the market paradigm will survive. Certainly in Europe and Asia government has a better reputation than private sector corporates, which are largely seen as an instrument to enrich their top management, sort of a worse form of corruption.

  16. Ive flown Hainan direct from Tel Aviv to Beijing numerous times. I flew coach and without question I would award each flight 9+, excellent food (ordered kosher), free drinks, and there are plenty of flight attendants through out the flight. They don’t disappear. In one segment, from Beijing to TLV, (where I had actually started earlier that day in Xi’an and had to wait a few hours, by the 1 am flight I was exhausted, I dozed off after take off. Must have napped 90 minutes, get up and immediately (literally like she had been watching) there’s this really fine looking, smiling flight attendant asking if I’d like to eat now or later. Really good service. I speak some Mandarin which I think she appreciated. I’ve flown enough to evaluate airlines and routes. HA for me is a great carrier.

  17. It says “the routes they haven’t canceled”, have some routes been canceled already? Where can I see the info? Thanks!

  18. @ Ryan — Well they’ve already canceled all kinds of routes to the US due to the coronavirus situation, among others (as have most Chinese airlines).

  19. I work for another carrier based near Shanghai (approx 50 aircraft). As crazy as it sounds, we are recruiting pilots right now (yes foreigners are coming in for interviews this week). The company is expecting some big news. And some believe that one of HNA group’s major companies is about to lose some of its routes (and maybe aircraft too) to our company. So a redistribution of assets seems like the likely outcome to me.

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