Caixin
Jun 09, 2021 09:17 PM
BUSINESS & TECH

Shandong Airlines Seeks Emergency Loan as Pandemic Losses Bite

Medical supplies are loaded onto a Shandong Airlines flight to Osaka, Japan, at Liuting International Airport in Qingdao, Shandong province, on April 29, 2020. Photo: VCG
Medical supplies are loaded onto a Shandong Airlines flight to Osaka, Japan, at Liuting International Airport in Qingdao, Shandong province, on April 29, 2020. Photo: VCG

State-backed Shandong Airlines Co. Ltd. (200152.SZ) is seeking an emergency loan from leading policy lender China Development Bank (CDB), highlighting its struggles under huge losses and surging debt even as air travel rebounds across the country after slumping last year amid the Covid-19 pandemic.

The company is applying for no more than 2.6 billion yuan ($406.6 million) in a one-year emergency loan from CDB to replenish liquidity and cover “operational expenses” such as jet fuel, salary and rent, according to a Monday filing (link in Chinese) to the Shenzhen Stock Exchange.

The loan will not involve collateral and reflects the support offered by the government and financial institutions to pandemic-hit industries, according to the filing.

Shandong Airlines has been under enormous financial pressure after revenue from passenger flights slumped last year as the pandemic slashed domestic travel. Consequently, the company reported (link in Chinese) a net loss attributable to shareholders of 2.4 billion yuan, a reversal from a 361 million yuan net profit in 2019. It also reported (link in Chinese) a net loss of 835.1 million yuan in the first three months of 2021.

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The company’s liabilities have swelled as it has borrowed more and more money to deal with liquidity risks. Short-term borrowings surged by 566.3% and long-term loans jumped by 657.1% last year, according to its annual report. Total liabilities rose from 12.2 billion yuan at the end of 2019 to 19.8 billion at the end of 2020 and then 34.7 billion yuan at the end of the first quarter this year, according to it financial reports.

Last week, ratings agency China Lianhe Credit Rating Co. Ltd. lowered (link in Chinese) Shandong Airlines’ overall rating from the highest AAA to AA, the second highest, citing credit risks stemming from the huge loss, plunging owners’ equity and rising debt.

The agency kept Shandong Airlines’ outlook as “stable” as it expects a rebound in the company’s business performance as air travel around the nation has shown signs of recovery after efforts to bring the epidemic under control have largely been successful.

This is not the first time Shandong Airlines has borrowed from CDB to help it cope with the fallout from the Covid-19 epidemic. Last year, the company received an emergency loan of 2 billion yuan at an interest rate of 2%, according to China Lianhe.

Analysts at Ping An Securities Co. Ltd. have estimated that Chinese airlines will see a recovery in their business performance in the second and third quarters of 2021, with some possibly swinging back to profit, as flights have rebounded in recent months.

In April, passengers traveling on airlines exceeded 51 million individual trips, an increase of 206% year-on-year and the highest level since the epidemic began, and equivalent to 96% of pre-Covid-19 levels, according to Ping An Securities.

However, they warned about the lingering impact of Covid-19 on some airlines, with the recent resurgence in cases in the southern Guangdong province.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)

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