Some aircraft leasing companies with exposure to HNA-affiliated airlines are experiencing delays in receiving lease rental payments as HNA pumps cash from those carriers into other areas of the highly leveraged conglomerate, Airfinance Journal understands.
In-house sources at five lessors have confirmed to Airfinance Journal they have been affected.
An executive from one of the affected lessors says a mainland-China-based, HNA-affiliated airline is late with payments on a narrowbody lease.
“It’s technically in default and significantly past the due date,” the person says, adding: “Airlines generate a lot of cash. All these airlines seem to be fine, according to my sources. It’s just the parent is over-extended.”
HNA’s affiliate airlines in mainland China include Air Chang’an, Beijing Capital Airlines, Fuzhou Airlines, Lucky Air, Hainan Airlines, Tianjin Airlines, Guangxi Beibu Gulf Airlines, West Air and Urumqi Air.
The group oversees aircraft leasing for all of these carriers from its base in Haikou, Hainan province, Airfinance Journal understands.
The issue appears to be confined to HNA’s mainland affiliates and does not extend to Hong Kong-based affiliates Hong Kong Airlines and HK Express, nor those airlines outside the PRC in which it holds equity stakes, a source says.
A Chinese lessor with exposure to Lucky Air tells Airfinance Journal that that carrier has been late with lease payments.
“Not only Lucky,” the person says: “Most of the HNA affiliates have some problems.”
A third lessor says its HNA-affiliated lessees are paid up for most aircraft, but there are “one or two” that are not current. The person says the situation is “not too bad” as they have close connections with the group and can therefore press their contacts for prompt payment.
Another lessor also confirms it has suffered delayed payments from HNA-affiliated carriers, but declined to be named or to provide further comment.
A fifth lessor says it has experienced payment delays of under one month, but that even this level of delay is "unacceptable".
"It feels like the whole situation of HNA is getting to a really critical point," the person says, adding that the problem appears to be coming not from the airlines, which are still making money, but from their parent company.
In an emailed statement, HNA Group says: "Hainan Airlines Holdings Co., Ltd and its subsidiaries keep a safe and stable operation, and good trading relations with each lessor. The payment obligation is held in reasonable payment days with clear plan."
According to Airfinance Journal's Fleet Tracker, other lessors with exposure to HNA affiliates include AerCap, Aircastle, Aergo Capital, Air Lease, ALAFCO, Apollo Aviation , Aviation Capital, Avolon, BBAM, BOC Aviation, Bocom Leasing, Bohai Leasing, CCB Leasing, CDB Leasing, CALC, China West Air, DAE Capital, ECC Leasing, Everbright Financial Leasing, GECAS, Goshawk, Hong Kong International Aviation Leasing, ICBC Leasing, Jackson Square Aviation, KKR DVB Aviation Capital, Macquarie AirFinance, Magnetar Capital, Merx Aviation, Minsheng Financial Leasing, Orix Aviation, Skyco Leasing, SKY Leasing, SMBC Aviation Capital and Sojitz Aircraft Leasing.
Newswire Reuters reported on 20 November that HNA Group has asked its lenders to extend the maturity of a $448 million loan by three months. The one-year loan, which is provided by Bank of East Asia, Nanyang Commercial Bank and Chong Hing Bank, is due on 24 November.
Chinese magazine Caixin reported earlier in November that HNA had fired the head of its tourism unit, which runs Hainan Airlines.
In August, the New York Times reported that a US company that buys engines, spare parts and other airline equipment for Hainan Airlines had come under scrutiny. The newspaper said that Pacific American Corporation (PAC), which Hainan Airlines' parent HNA previously said was an independent company, is actually run by the son and younger brother of HNA’s co-founder and co-chairman Chen Feng – and was once controlled by HNA.
While the exact impact of the above events on the company, whose shareholding structure has been investigated in particular by The New York Times (external link), remains unclear, sources say that HNA is likely prioritising payments to lessors with which it has stronger relationships, while leaving smaller-time leasing partners hanging, in order to support less cash-rich areas of the group.
“In China we have a saying: you have 10 pots but you have nine lids, so only some get covered. Maybe in this case there are only six or seven lids,” says one lessor source, adding that the likelihood of prompt payment depends on the relationship with the company.
“If you just buy a portfolio of one or two aircraft
An HNA insider says the airlines are generating cash but that some of that cash is being used for other purposes within the group.
“This is about the third or fourth time in their history where they have effectively managed the cash-flow by delaying payments to suppliers that they thought they could get away with,” the person says.
The person says that if, for example, HNA delays payments for one month on 100 aircraft with $350,000-per-month lease rentals, that could free up $35 million, which is “almost like a rollover loan”.
However, the person expresses concern about the reputational impact on the group from this short-term cash-saving strategy.
“I think the problem for the people who are making this decision is they don’t realise the impact it will have,” the person says, adding: “If they have to do it, they have to do it, but the damage that’s being done compared to going out and raising an extra $100 million of liquidity in a usual manner is not good. I think they are damaging the group’s reputation."
HNA Group says in an emailed statement: "As a company listed on the Shanghai Stock Exchange, Hainan Airlines Holding’s actual controller is Provincial State-owned Assets Management Committee of Hainan. Hainan Airlines Holding and its subsidiaries strictly comply with the regulatory requirements of the CSRC and SSE for corporate governance and corporate operation."