Caixin
Dec 22, 2017 06:02 AM
M&A

Two HNA Airlines Briefly Suspended by Accounting Service Over Missed Payments

HNA has made splashy overseas acquisitions totaling $25 billion since 2015, raising questions about its financial strain. Photo: Visual China
HNA has made splashy overseas acquisitions totaling $25 billion since 2015, raising questions about its financial strain. Photo: Visual China

Two subsidiary airlines of Chinese conglomerate HNA Group were briefly suspended by a state-owned accounting service after repeatedly missing payments, underscoring why concern continues to grow about the capital strain on one of the country’s biggest private overseas dealmakers.

Beijing Capital Airlines and Yunnan-based Lucky Air were late in payments to Accounting Centre of China Aviation Ltd. Co. (ACCA), a subsidiary of state-owned TravelSky Technology Ltd. that provides ticket-sales settlement and clearing services to commercial airlines, Caixin learned from separate people close to the matter. ACCA suspended its settlement services with the two airlines on Dec. 19, according to the sources.

The two airlines had overdue payments over three settlement periods, according to a notice issued by ACCA that was viewed by Caixin.

Following the notice, Shandong Airlines notified its agents to stop issuing flight tickets through platforms of Capital Airlines and Lucky Air.

“We didn’t expected (the move of ACCA) and everyone (at Capital Airlines) was nervous,” one source from Capital Airlines said.

The two wholly-owned units of HNA Group quickly paid the late bills and their business with the settlement center resumed, sources said.

In response to Caixin’s questions, Capital Airlines and Lucky Air said Thursday that they have maintained normal business operations with ACCA and there are no current arrears.

Capital Airlines has 72 planes operating on 200 domestic and international routes, while Lucky Air owns a fleet of 45 planes that fly to 112 destinations.

The late payments returns attention to the liquidity of HNA and its subsidiaries after the airlines-to-financial services conglomerate made splashy overseas acquisitions totaling $25 billion since 2015, including the purchase of a 25% stake in U.S.-based hotel operator Hilton Worldwide Holdings Inc. for $6.5 billion.

China’s Citic Bank Corp. recently said another HNA subsidiary, HNA Aviation Group Co., had trouble paying certain short-term debt and that it was working with HNA to try to resolve the situation.

Sources told Caixin that HNA delayed some scheduled loan repayments due several months ago, although it made the payments within a couple of days, while several of its subsidiary airlines have also delayed payments on their flight-leasing fees.

HNA faces more repayments that are coming due, adding pressure, a source from HNA said.

Several HNA units recently canceled their bond sales after worries about the parent’s financial strains pushed these units’ borrowing costs to a record high.

Lucky Air recently sold 75.7 million yuan ($11.5 million) in bonds at a coupon rate of 8.2% — the highest coupon rate in the history of the company.

HNA’s Tianjin Airlines this week canceled a planned offering of 1 billion yuan of 270-day notes, citing “market fluctuation.” The company had planned to use the proceeds to repay two bonds maturing in January and February, according to the prospectus.

HNA’s flag carrier Hainan Airlines Holding Co. and Bohai Capital Holding Co. also scrapped bond offerings earlier this month.

Amid mounting pressure, HNA has pared backed some of its assets. HNA Chief Executive Officer Adam Tan said last month that the company is considering selling some assets, including properties in New York and Sydney, and minority stakes in more than 100 small companies.

HNA is seeking sale of $6 billion in overseas properties, according to The Wall Street Journal, citing a person familiar with the matter.

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