Tuesday 20 November 2018

HNA Holdings to reduce its stake in Urumqi Air to 30 per cent

Report by : Gan Yung Chyan
                  / KUCINTA SETIA
Distributed to All Press & Travel Professionals



On 20 November 2018, HNA Holdings signed a strategic cooperation framework agreement with the Urumqi Municipal Government to combine their respective advantages to strengthen and build Urumqi Air an important national airline.

Under the framework, the Urumqi Municipal People's Government or its designated subsidiaries will hold 70 per cent of Urumqi Air while HNA Holdings will hold 30 per cent. Equity adjustments may be made in cash or in the form of physical and equity assets related to aviation operations.

Urumqi Air, which was established in 2014, currently has a fleet of 16 aircraft and operates 46 domestic and 1 international route. The net profit for the first half of 2018 was 0.5 billion yuan. At present, the controlling shareholder of Urumqi Air is HNA Holdings (600221.SH) under the HNA Group, holding 70 per cent of Urumqi Air, and Urumqi Urban Construction Investment (Group) Co., Ltd. holds another 30 per cent.

In March 2018, the second shareholder Urumqi Urban Construction Investment (Group) Co., Ltd. announced that it will increase its capital by 450 million yuan. The signing of this contract is to further take control of the controlling stake.

According to the agreement between the two parties, after the completion of the equity restructuring, Urumqi Air will hire a professional team of HNA Holdings under the leadership of the board of directors to be responsible for the safety, production and operation management of Urumqi Air. The chairman of the board is recommended by the Urumqi Municipal Government or its designated subsidiary, and the general manager is recommended by HNA Holdings.

This also means that after the Xinjiang government has increased its stake in Urumqi Air, the specific management operations will still be handled by HNA.

Earlier, HNA Group and China Commercial Aircraft (COMAC) signed an intentional order for 20 ARJ21 aircraft, and these 20 aircraft will also be operated by Urumqi Air.

During the Zhuhai Air Show, Urumqi Air signed an agreement with COMAC to confirm that it will receive two ARJ21-700 aircraft from COMAC before the end of this year and plans to receive three ARJ21-700 aircraft in 2019.

According to plans of Urumqi Air, its future will actively respond to China's “Belt and Road Initiative” , the tourism development strategy of the autonomous region, speed up the introduction of aircraft, increase the capacity of the Xinjiang region, and open intra-provincial and cross-border routes from Urumqi, thus bringing profits to the Xinjiang government and HNA Holdings. 

Urumqi Air will present a more reliable transportation image of Xinjiang through its comprehensive route network and gradually open international routes to Central Asia, West Asia, South Asia and Europe from Urumqi thus providing a convenient Asian-European air bridge for cultural exchanges.

Having an airline that truly belongs to a Chinese city has always been the wish of many local governments. In addition to Urumqi Air, the government-owned shareholders of several airlines such as Capital Airlines and Lucky Air, which are owned by HNA Group, are willing to increase their shareholding ratioes.

The cooperation mode signed by Urumqi Air with the Xinjiang government (government funded, HNA management) will become a template for future cooperation between Hainan Airlines' subsidiaries and Chinese city governments. After all, in aviation operations, security, services, etc. HNA has more experiences.

Such a cooperation model also means that HNA Group, which is still not well funded, will not easily sell all its airlines, but will further focus on the aviation industry through “output management”. Under such a line of thinking, cooperation with local governments that already have equity relationships is undoubtedly a better choice.

In February 2018, Tianjin Free Trade Zone increased its capital by 400 million to Tianjin Airlines. In March 2018, Urumqi City Construction Investment increased its capital by 450 million yuan to Urumqi Air. The capital increase methods include but not limited to land, buildings, physical assets, capital and equity. In August Shaanxi Airport Investment Group increased its capital by 300 million yuan in Air Changan while Kunming Xishan District Development Investment Group plans to increase capital by 200 million in Lucky Air.

Since the second half of 2018, Chen Feng has served as the chairman of the board of directors of HNA Group, and has increased the disposal of assets. The non-main business business has been diversified and the non-health industry has withdrawn. HNA's assets of nearly 300 billion yuan have been disposed of this year, mainly involving diversification and non-aviation business.

These include financial aspects of the abandonment of the acquisition of Hua'an Insurance, the transfer of Xinguang HNA Life Insurance, the sale of Lijiang Jinkong, the sale of Lianxun Securities, and HNA recently abandoned the purchase of Bohai Trust and proceeded with the real estate sales of high-priced Hong Kong Kai Tak three plots, Shanghai Land, Hainan Real Estate, Shenzhen Haihang City etc.

Within the HNA Group, the original seven industrial groups merged into four, and later became "two masters and two assistants." At the same time, as the core business of the aviation industry, HNA Holdings has also established a new business committee, which is equivalent to the marketing committee of the three major airlines. It has a marketing department, a network department, an e-commerce department, an international department and other departments. The airline's route market is coordinated to improve resource utilization efficiency and reduce internal losses.

It can be said that whether it is from the requirements of the government or the adjustment of HNA's own strategy and organizational structure, it is returning to its main business of aviation by focusing on improving the aviation core industry and related industries around aviation, including aviation tourism, aviation logistics, and aviation insurance, leasing and aviation technology.

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