HNA Group is Challenging Etihad as the Patron Saint of Failing Airlines

Azul, Hainan

How many of you have even heard of HNA Group? The Chinese-based group is massive with holdings in everything from airlines to airports, hotels, insurance and much more. It’s on its way to being one of the biggest companies in the world. HNA started in 1993 as Hainan Airlines, but today Hainan Airlines is just the flagship of a larger group with hundreds of airplanes at nearly 20 different airlines.

HNA Group Airlines China

If you don’t know Hainan Airlines, you probably will soon. The airline has been on a tear, growing service to the US significantly. Back in 2008, Hainan started flying Beijing to Seattle, basically looking to serve routes that the big three in China didn’t want since it couldn’t compete with them. Since then, on the back of its growing 787 fleet, it has added Beijing to Chicago, Toronto, Boston, San Jose, and Calgary. It also flies from Boston and Seattle to Shanghai. More recently, it added a flight from Los Angeles to Changsha, one of those “small” Chinese cities with only 5 million people. There is undoubtedly more coming.

But Hainan is just one of several Chinese airlines the group owns, at least in part.

  • Capital Airlines – based in Beijing with a mostly narrowbody fleet, but a couple A330s as well
  • Deer Jet – private jet operator
  • Chang An Airlines – based in X’ian with 4 airplanes that all currently operate under the Hainan brand, but there are plans to have it start flying independently again
  • Fuzhou Airlines – based in Fuzhou and is a joint venture with the local government – expects to have up to 40 narrowbody aircraft
  • Grand China Air – based in Haikou with only a few airplanes (this is also the name of the parent company)
  • GX Airlines – based in Nanning as a joint venture with a local investment company, flies Embraer 190s
  • Hong Kong Airlines – based in Hong Kong with A320 and A330 aircraft
  • HK Express – low cost carrier based in Hong Kong with fleet of A320s for medium haul
  • Lucky Air – low cost carrier based in Kunming with a mix of 737s and A320s
  • Tianjin Airlines – originally a regional airline based in Tianjin, it now operates A320s and has ordered A330s for long haul in addition to its regional fleet
  • Urumqi Air – low cost carrier based in Ürümqi with a handful of 737s
  • West Air – low cost carrier based in Chongqing with a fleet of A320s
  • Yangtze River Express – cargo airline based in Shanghai

If this sounds complex, this is just scratching the service. The whole corporate structure is dizzying with holding companies and airlines owned by other airlines. (For example, GX Airlines is owned by a local investment group and Tianjin Airlines, which is turn is owned by Grand China Air Company which is owned partially by the Hainan government, HNA Group, and George Soros.) Confused? Me too.

But the overall strategy seems to be to partner with local governments in parts of China to create individual airlines that will all eventually be united in one way or another. (The four low cost carriers are already doing that as members of the U-FLY Alliance.)

If this was just all about China, then this wouldn’t be as much of a story. But HNA Group has been spreading its wings in some unlikely places.

This whole strategy began in 2010 when Hainan took some unneeded ERJ-145s from Tianjin Airlines and committed them to a startup in Ghana called Africa World Airways which it started with the China-Africa Development Fund. This airline began flying in 2012 and currently flies around Ghana and over to Lagos. According to its website AWA (as a former America West employee, that sounds weird) also codeshares to Washington on the South African flight. It’s looking to acquire A320 family aircraft as well. I haven’t seen any indication of how this airline is doing. It may not matter.

Next up was myCargo, an airline Hainan bought half of back in 2011. MyCargo started out in 2004 but has gone through ownership changes a couple of times since then. Today the CEO still owns half the airline along with Hainan. If you see it, you’ll notice the branding looks a lot like Hainan’s. It has a fleet of 747s, but it looks like only 6 are active today.

In 2012. Hainan moved into stranger territory when it bought nearly half of Aigle Azur, a French airline flying A320s from France to Algeria, Mali, Senegal, and Portugal (quite the mix). Why does this fit in the HNA portfolio? Back when the transaction occurred, CAPA suggested that the primary rationale was that HNA was restricted from flying from many France-China routes because of Chinese aviation policy which allows only one Chinese airline on each route. With a French airline, Hainan could codeshare on flights from France to China operated by Aigle Azur.

But the predicted acquisition of A330s to fly the route hasn’t materialized since Russia denied permission to fly over the country. So far, Hainan on its own flies from X’ian to Paris, but that’s about it. Maybe the long term goal is to get around Chinese laws so it can fly more to France, but in the meantime, it owns half an airline flying nowhere relevant.

The next HNA investment took a strange turn in that it was in Comair, a profitable airline in South Africa that operates as a British Airways franchise. Comair also owns low cost carrier Kulula. The investment was small at just over 6 percent. While Comair is profitable, this investment really makes little sense in the context of HNA’s broader strategy (if it has one).

Last up is the most interesting. Late last year, HNA put up $450 million to buy nearly a quarter of Azul. Azul, of course, is the Brazilian airline started by JetBlue founder David Neeleman. After succeeding early, Azul continued to grow quickly, even venturing into long haul flying to the US. But then Brazil’s economy tanked badly, and with it, all Brazilian airlines found themselves in trouble. First, Azul sold a stake to United and then HNA ponied up as well.

What does this have to do with anything? It’s unclear. HNA’s acquisitions don’t really seem to fit in any particular pattern. None of them have proven to be overly successful so far, but then again, we don’t really know much about the underlying financial details.

If anything is clear, it’s that if you own an airline and you need a capital infusion, Etihad is no longer your only option. HNA appears to be happy to dive right in as a new patron saint of failing airlines (a term coined ages ago by Holly Hegeman at PlaneBusiness).

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18 comments on “HNA Group is Challenging Etihad as the Patron Saint of Failing Airlines

  1. Not forgetting the ones that got away… Earlier this year, HNA also tried to buy London City Airport, an airport with a runway so short that the closest you can get to China is, errr, Frankfurt

    1. Wasn’t there some reports about a Chinese Airline interested in bidding on VX? Maybe HNA was trying to scoop them up

  2. HNA just bought Gategroup, a Swiss caterer, for $1.5b. And yes @Ben in DC, there was a rumor but I don’t think it was substantiated very well. Maybe they’ll buy Eastern next?

      1. Thanks! It was never my intent to be that rude; I thought I was privately forwarding it to a friend who is peripherally interested in the subject and I don’t know what happened.

  3. I’m sure Air Berlin will be delighted to hear this. They’ve already burnt through 1 billion euros of Etihad’s cash and are now desperately casting around to try to find an investor to hand over cash and prop them up.

  4. Thanks for the awesome article. I would agree that HNA’s investment strategy is somewhat strange and unpredictable; I think that for the most part they’re just trying to sink some money wherever possible and hope that it pays off in the long run. I get the feeling that the top dogs at HNA know what they’re doing. I’ve always very impressed by their rapid growth from a small airline based in a small and insignificant province of China into a massive conglomerate.

  5. So what’s the damage? What does their balance sheet look like or is it just a big fat unknown? They should merge with Ethiad and call themselves “state subsidized airlines”.

  6. HNA employee is here`~
    Though I am not in the investment function part, I am sure the core guideline of HNA oversea investment is to acquire foreign assets (especially USD assests with good cash flow) while adding RMB debt. For industry, it normally looks for airline or travel related assets like aircraft leasing, hotels, other airlines as well as some properties. HNA just set up an industry group called “HNA Eco-Tech” whose first big deal is to buy a building in SFO (maybe LAX).

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