Pressure mounts on budget carrier

Top News | Avery Chen and Reuters 4 Dec 2019

The Air Transport Licensing Authority said it had not received any response from Hong Kong Airlines about the two new requirements made by the aviation regulator as of yesterday.

The budget carrier was ordered the day before to shore up its financial position by Saturday, otherwise it risked the suspension or loss of its license.

The authority asked the airline to guarantee a cash injection at a determined level while also raising its cash and cash equivalent level.

Chinese conglomerate HNA Group, parent of Hong Kong Airlines, said late on Monday that it had received a 4 billion yuan (HK$4.44 billion) loan from eight state-owned banks led by China Development Bank, which may provide a lifeline to the airline.

The three-year syndicated loan at an interest rate of 4.75 percent will be used to cover the costs of fuel, maintenance charges, staff salaries and operational expenses, HNA Group said.

The lenders - including Bank of China, China Construction Bank, Agricultural Bank of China and Industrial and Commercial Bank of China - plan to provide 500 million yuan each to HNA.

HNA added it has agreed to a deal to restructure its low-cost carrier West Air under a Chongqing-based asset management firm.

Sun Jianfeng, chief executive of HK Airlines, did not deny when asked about whether the company had received a cash injection from HNA.

He said the carrier is seeking "other funds" to improve its financial situation at a meeting with the Staff and Workers Union of Hong Kong Civil Airlines yesterday.

Sun said the company is confident it will meet the latest requirements.

HK Airlines has postponed paying the salaries of local employees from November to December 6 after recording a significant drop in revenue.

Sun promised that the company will not lay off workers and will make payroll on time.

HK Airlines will protect the labor rights of existing employees by human resource measures such as freezing hiring, natural wastage, and job transfers, Sun said.

The airline in April told shareholders it needed at least HK$2 billion in fresh funds or it would lose its operating license.

The airline reportedly has less than HK$150 million in cash.

Meanwhile, Goldman Sachs said it will raise the 2020 earning projection of Cathay Pacific Airways by 20 percent if the ATLA revokes HK Airlines' license.

Cathay, Hong Kong's largest airline, issued profit warnings, a frozen headcount and reduced passenger capacity as the aviation industry has been hit by the social unrest.

Goldman Sachs expects Cathay, whose valuation is at a historic low, to benefit from tourism recovery after the social unrest eases.

It predicted that if HK Airlines collapses, ticket prices of other airlines will rise, driving the return rate of Cathy up by one percentage point.

avery.chen@singtaonewscorp.com

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