Hong Kong Airlines receives lifeline just in time

posted on 5th December 2019 by William Hayes
Hong Kong Airlines receives lifeline just in time

Hong Kong Airlines has announced that it is to receive a much-needed cash injection, enabling it to pay staff and resume normal services that had begun to look under threat.

The bailout – from an undisclosed source – follows a rocky period for the airline, which at one point looked at one point to be teetering on the brink of collapse – forcing it to reassure passengers that it was still able to fly them to their destinations.

“All of our stakeholders, including shareholders and management, attach great importance to this matter. Following urgent consultations, an initial cash injection plan has been drawn up. Outstanding salary to staff will be paid on 5 December 2019 and our services will gradually resume to normal as soon as the funds arrive,” the airline said in a statement.

Hong Kong’s Air Transport Licensing Authority (ATLA) had also warned the airline on Monday that if it did not improve its situation by Saturday it faced the risk of losing its licence.

Hong Kong Airlines’ parent company HNA Group had secured a four billion yuan (US$568 million) three-year loan on Monday from eight Chinese banks, with each providing 500 million yuan (US$71 million), according to a filing to the Shanghai Stock Exchange.

The filing says the money can be used for aviation fuel, aircraft supplies and materials, take-off and landing fees, staff salaries and aircraft leasing fees.

Hong Kong Airlines did not say in its statement whether its cash injection plan involves any funds from this loan and a spokesperson did not immediately respond to a request for comment. According to the stock exchange filing, the funds can be used for any of HNA Group’s affiliate airlines.

David Yu, professor of finance at New York University Shanghai and chairman of China Aviation Valuation Advisors, said that the significance of the cash injection will depend on its size.

“If it’s more on the smaller side, it will be viewed more as a short-term measure than a long-term solution,” he said.

“While we don’t know the exact amount of capital injection, this is of course a positive sign as, at a minimum, it would cover the outstanding for employees. We will wait to see whether this is enough capital injection to satisfy the ATLA funding requirement concerns.”