LONDON – Hong Kong Airlines is looking to restructure HK$49 Billion (6.2 billion US dollars) worth of debt.
Debt a Problem in Struggling Market
Backed by the failing Chinese conglomerate HNA Group, the Hong Kong-based Airline is looking to the United Kingdom and Hong Kong courts to restructure the debt, in a bid to avoid insolvency.
A proposal is due to be put forward to creditors that would include reducing the amount of debt owed by a significant amount. The plan will need acceptance by seventy-five per cent of the airline’s creditors to go through.
The carrier has received letters of support backing the plan in principle by seventy-three per cent so far. If the restructuring plan does not go ahead the carrier will be facing “insolvent liquidation.”
A hearing is due to take place at the Hong Kong high court on October 13th and a UK hearing is scheduled for October 25th.
Financial and operating aircraft lessors have brought the largest group of claims, being owed HK$22.5 billion. Bank lenders and financial creditors are owed HK$5.7 billion and related party creditors HK$6.8 billion.
The crippling debt requires the carrier to cut the size of its aircraft fleet by nearly two-thirds. HNA aviation, an arm of the conglomerate of the same title, is set to plough HK$3 billion into the carrier in a bid to support it.
Earlier this year, the airline asked its two hundred pilots to take several months time off on heavily reduced pay, in a bid to cut costs amidst a struggle brought on by both Covid and a failed expansion plan. It called for volunteers to take the leave, starting in May through December.
The deal consisted of just 1.6 months’ worth of pay, for the 7 months off until the end of 2022.
The employees were asked to think about the “sustainability of the business” and being able to “maintain the employment of most of our colleagues” in a memo released to senior management and all Airbus A330 pilots in May.
Issues Have Been Long Term
Hong Kong Airlines was struggling prior to Covid, as an expansion plan that tried to grow the carrier into providing long-haul journeys to the United States and Canada failed to provide the results they expected. This endeavour proved to cost the airline greatly, both financially and in employees as it was forced to cut some seven hundred jobs in June 2021.
Obviously, the pandemic will not have helped this great financial struggle HK Airlines is going through. Grounding flights, job cuts and navigating the difficult landscape caused by many border closures have impacted most of the airlines around the world over the last 2.5 years.
Asia has been subject to some of the most stringent border closures since the onset of Covid. Now, a large proportion of the globe has reopened their borders, with some having completely done away with covid travel requirements, Hong Kong and China’s borders remain closed to the rest of the world.