HK Airlines: government considers contingency plan for possible Lunar New Year shutdown

10-Jan-2019 Intellasia | South China Morning Post | 6:00 AM Print This Post

The Hong Kong government is assessing the potential fallout from the possible collapse of the city’s third largest airline during the coming Lunar New Year peak travel period, with authorities considering a contingency plan, according to two sources with knowledge of the review.

The Transport and Housing Bureau (THB) and the Security Bureau were asked to comment on risk assessment measures involving Hong Kong Airlines, which could include coordinating special flight arrangements with other carriers in case of a sudden shutdown.

“The impact would be enormous as tens of thousands of travellers might be stuck abroad if the carrier suddenly shuts down in the travel peak season,” one source said. “Regardless of the chances, authorities should be prepared.”

Without confirming or denying the plan, a THB spokeswoman said it noted the airline had already issued a statement, and the government had “nothing to supplement”. The Security Bureau referred inquiries to the THB for comment.

As conjecture mounted over the airline’s increasingly parlous financial state, the beleaguered carrier over the weekend slammed the “untrue and groundless speculation” about it ceasing operation and applying for liquidation.

“The company has been and is continuing to operate as normal. We remain committed to offering our best service to customers who have chosen to support and fly with us,” the airline said in a statement last Saturday.

The company has been contacted for comment on the contingency measures being considered.

Hong Kong Airlines is controlled by debt-laden aviation-to-finance Chinese behemoth HNA. A $50 billion worldwide spending binge on assets like property, banks, hotels and more had pushed the mainland conglomerate to the brink.

Meanwhile it emerged on Monday that China Development Bank (CDB), HNA’s biggest creditor, would rescue the embattled airline by providing more than $550 million in funds to pay off impending debts due on January 20, industry publication REDD Intelligence reported, staving off an imminent crisis for the company.

CDB is supervising HNA asset sales. An ongoing effort to sell stakes in Hong Kong Airlines and sister company Hong Kong Express had stalled before the recent developments emerged involving the carrier’s financial health.

A source connected with the airline and familiar with its affairs said closure was being avoided at all costs.

“Having a shutdown at this time of the year is not good. When a debt is not paid, there may be a requirement according to the licensing agreement… If they default, they may lose the flying licence temporarily,” the source said.

The airline operates 38 passenger aircraft to 36 destinations, creating a vastly more complex planning process across multiple government departments and the private sector in the event of an activation of a contingency plan to rescue passengers.

The failure of a company the size of Hong Kong Airlines would be the biggest since Air Berlin collapsed in 2017.

A string of small to medium-sized airlines, mainly in Europe, have flown into financial trouble since. And a handful of Asian carriers are facing difficulties, including India’s Jet Airways.

This would not be the first time the city’s government has considered and coordinated emergency measures to prepare for the sudden closure of an airline.

In April 2008, Oasis Hong Kong, which offered discounted long-haul flights to London and Vancouver, closed after only 18 months with more than HK$1 billion in losses since its launch in October 2006. It was the world’s first budget long-haul airline.

The decision left 50,000 travellers in limbo, including students studying abroad, close to the end of the Easter holiday.

The government at the time made special arrangements with Cathay Pacific and British Airways to offer extra flights, especially one-way tickets with discounted fares and priority bookings for students returning to schools in Britain.

The Hong Kong Immigration Department also flew officers to London and Vancouver to help stranded residents, with the support of local staff at the Hong Kong Economic and Trade Offices in both locations.

Hong Kong Airlines has been confronted by authorities, who have publicly ordered the carrier to “explain” its financial situation.

The company is understood to have been required to provide the Air Transport Licensing Authority (ATLA) a detailed business plan with financial costs to prove it would be a viable business, according to the industry source.

ATLA has the power to revoke the airline’s licence if it deems the financial position unsatisfactory, raising the seriousness of the situation.

The same Hong Kong Airlines source added that the first barrier, which was to pay off the debt, had since been overcome.

“Of course there is the debt problem. But we have not experienced serious circumstances that need us to carry out special measures. For now, [the company] is running normally,” he added.

An industry executive from a rival airline, who did not wish to be identified, said neither Hong Kong or Beijing’s governments could or would allow Hong Kong Airlines to collapse. He described the carrier as “too big to fail”.

Hong Kong Airlines has featured heavily in the media since mid-December. First, six directors left the firm in the space of six months, along with other key personnel, including the chief financial officer, who departed abruptly with no replacement named.

Amid debt warnings leading to the ATLA scrutiny, parent company HNA sued a unit associated with the airline, controlled by a former director, for HK$854 million (US$109 million). Hong Kong Airlines has denied links to the unit in question.

Insurer Blue Cross said last week, citing media reports on the carrier’s woes, that it would amend travel policies to remove coverage in the case that Hong Kong Airlines went out of business.

The carrier has delayed delivery of new planes, halted plans for further long-haul flights and cut flights on existing routes.

Hong Kong Airlines carried 7.64 million passengers last year. It employs 3,900 staff, of whom 90 per cent are understood to be Hong Kong-based workers.


Category: Hong Kong

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