Asia Watch

It’s something that has been at the centre of speculation for months, including rumours of impending bankruptcy and failure to pay wages to staff at some of its dozens of subsidiaries.

Apparently, Hainan, China’s fourth largest airlines, is no longer under the control of HNA… and that’s official. Xu Jun, the carrier’s president, has told investors that Hainan’s State-owned Assets Supervision and Administration Commission (SASAC) now controls the airline through its stake in Grand China Air Co. Ltd. Grand China, headquartered in Beijing, was formed in 2007 under the initiative of Hainan Airlines itself to merge its operations with other HNA Group subsidiaries Shanxi Airlines, Chang An Airlines, and China Xinhua Airlines.

It is, you might say, a parent. What has been happening at Hainan has, until now, been rather opaque, to say the least. What is known is that HNA’s ambitious investment strategy has been unravelling and it is now undertaking a major restructuring to raise cash by selling equity and real estate assets amid a government crackdown on debt among some of the country’s biggest conglomerates.

Since the start of this year, it has agreed to sell close to A$20 billion worth of real estate in Australia, New York and Hong Kong, along with shares in Deutsche Bank AG, and Hilton Worldwide Holdings, Inc. Significantly, however, none of its aviation-related assets have been put on the chopping block.

While Xu told investors during a conference call the SASAC was now in control, it seems that isn’t the end of the matter and that the restructuring could lead to a further change of hands. “The company is currently communicating, negotiating and proofing its asset restructuring plan, and there is a possibility that the actual controller of the company could change.

It will ultimately be determined after the plan is approved by the relevant authority,” he explained. Whatever happens, the developments mark a significant change in the history of Hainan Airlines. How long that will take is uncertain.

The airline was founded by Chen Feng, a former government official who went on to establish the HNA Group and now chairs both companies. Early investors in the airline included George Soros, the billionaire financier who at one point controlled a 25 per cent stake in the carrier. He has since sold out.

Of course, the reason this is all relevant to Australia is HNA’s interest in Virgin Australia and whether what is happening actually has any meaning. The answer, at least for the time being, is probably “no”.

‘The answer, at least for the time being, is probably “no”.’

It seems likely that whatever eventuates and whoever controls the airline they will want to maintain profitable network links. And Virgin chief executive John Borghetti doesn’t seem to be having any sleepless nights over it, although he will certainly be keeping one eye on developments.

He told this columnist recently he is more than happy with both his Chinese partners – the HNA Group and the Nanshan Group, a privately-owned Chinese conglomerate whose interests include Qingdao Airlines, both of which now own around 20 per cent of Virgin.

“I have no concerns. The relationship is exceptionally good with both Chinese partners and HNA has been instrumental in assisting us through Hong Kong Airlines to operate through Hong Kong. We wouldn’t be doing it if we didn’t have them as a partner because we wouldn’t have feed. All I can say from our side is that they have proved to be exceptionally good shareholders, very supportive.”

With flights already operating from Melbourne to Hong Kong, Virgin will launch from Sydney to Hong Kong in July. VA also recently tied up a long-term agreement with HNA owned Gate Gourmet, the global airline caterer.

“They have other companies that we use so the synergies and benefits are good. Nanchang likewise are a terrific partner and we are very pleased to have them. I do think we are quite privileged to have them with us.”

Borghetti is enthusiastic about how well sales for its Hong Kong flights are going. “To a large extent it’s because of Hong Kong Airlines and the HNA Group. I think that had it not been for them we wouldn’t be going to Hong Kong.”

Whether or not there is a shareholding the Code-share arrangement with HNA’s Hong Kong Airlines will remain critical to both sides as the number of Chinese visiting Australia and the number of Australians visiting China continues to surge.