HK Airlines Seeks $12 Million Of Damages From Shareholder And Permission To Restructure

10-Jun-2019 Intellasia | Forbes | 6:00 AM Print This Post

It is unusual for a company to seek damages from its own shareholder, but the ownership dispute at Hong Kong Airlines is anything but ordinary. Management is pushing for a resolution and legal permission to restructure the airline as the conflict amongst HNA Group factions risks exceeding four months in a weakening business environment.

Hong Kong Airlines requested an initial HK$95 million (US$12.1m) in damages at Hong Kong’s High Court on June 5. The fortification is sought from two of its shareholders that proclaimed a boardroom coup in April and then filed injunctions against management and other parties.

“This sum is intended to cover losses or expenses which Hong Kong Airlines Limited may suffer by reason of the injunction,” a spokesperson for the airline says. The injunction was replaced by court undertakings, but the airline contends the original injunction has “no valid grounds.”

A lawyer for the two shareholders balked at the amount, but Justice Jonathan Harris observed the significance of the company at the centre of the case: “It’s an airline.”

The $12.1m figure is expected to rise as the proceedings head for a hearing in July about the injunction, and a two-day hearing in August to determine the airline’s lawful shareholders. The court may not make a determination right away, potentially stretching the dispute over four months. Executives have been limited to only make ordinary day-to-day decisions rather than restructure the loss-making airline that recently mounted long-haul expansion, including to Los Angeles and San Francisco.

A lawyer for the executives told the court the matter needed to be expedited and the injunction discharged. “This needs to be resolved. They have an airline to run,” the lawyer said. The executives want to restructure the airline and make decisions currently prohibited under the confines of day-to-day business matters. Hong Kong Airlines could sell its cargo airline, Hong Kong Air Cargo, the court heard in April. Hong Kong Airlines has other investments, including in ground handling and maintenance, that it could off-load.

Urgency is mounting. Hong Kong Airlines does not disclose monthly performance, but local rival Cathay Pacific is seeing operating conditions weaken. Cathay said its most recent passenger yields, for April, declined and “such yield pressure is expected to continue in the coming months”. Air freight declined in volume and yield, and Cathay warned both metrics are “expected to remain difficult for the foreseeable future.”

The fortification is sought from two shareholders, Zhong Guosong’s Hong Kong Airlines Consultation Services and Frontier Investment Partner.

“Frontier and HKA Consultation have been evasive in their provision of an undertaking in damages, have failed to plead any valid claim against the undisputed management of Hong Kong Airlines Limited and have not disclosed to the court their own means/resources,” the airline spokesperson said.

The fortification is due if the injunction is determined to have been invalid. HKA Consultation claimed Hong Kong Airlines management acted improperly, including by removing and expunging official records. “We dispute those allegations about document destruction,” said the lawyer for Hong Kong Airlines chair Hou Wei and CEO Sun Jianfeng, who were named in one of the injunctions.

The court heard Frontier and HKA Consultation did not yet have a statement of claim despite the hearing occurring six weeks after the initial April court session.

Justice Harris appeared frustrated at apparent delay tactics and disorganisation with the lawyer for Frontier and HKA Consultation, which requested a long period to file evidence. “I’m not terribly sympathetic. You’ve had six weeks,” Justice Harris said. On a separate occasion when the lawyer sought more time under the auspice of being considerate to other parties, Justice Harris sarcastically remarked, “That’s very thoughtful of you. You want time.” When giving simple procedural orders, Justice Harris observed that the lawyer appeared “troubled by this”.

Hong Kong Airlines has postponed delivery of A350 aircraft, shelved new destinations, reduced long-haul flights and has been restricted by the regulator from growing. A spokesperson said the airline needs to be “sustaining our long-term growth with operational stability at all times.”

A hearing for the injunction is scheduled for July 17. A separate hearing to determine the lawful ownership is scheduled to for August 22-23. Frontier’s stake in Hong Kong Airlines was allegedly sold to another party without its knowledge. Hong Kong Airlines Consultation is an uncontested shareholder of Hong Kong Airlines. million-of-damages-from-shareholder-and-permission-to-restructure/#36ffe6cf699a


Category: Hong Kong

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