LONDON – Hong Kong Airlines, on September 27th, gave out the Practice Statement Letter to most of its aircraft lessors, other perpetual noteholders, and other unsecured creditors.
The Practice Statement Letter states that the restructuring plan is proposed by Hong Kong Airlines for creditors under part 26A of the Companies Act 2006 of the United Kingdom.
The carrier is looking to implement a restructuring regime of its aircraft lease obligations and other liabilities for action in the UK and Hong Kong.
The airline plans to yield aircraft lessors a right to an upfront cash recovery, which is approximately 5% of their claims.
What Should the Affected Lessors Consider?
Lessons should, by default, be in a consistent review of the website (Hong Kong Airlines) for the restructuring plan.
If lessors consider wishing to proceed, they should follow the points raised in the Practice Statement Letter:
The stated recovery levels may proceed if the plan is at times unclear as to how the amount of cash available for distribution was calculated and how the Hong Kong-based airline will come to the conclusion of the total dollar amount of claims by aircraft lessors and other unsecured dollars.
The plan does not clearly specifically state the rate of anticipated (future) payouts that are subjected to future revenue earnings of Hong Kong Airlines.
However, the plan does not compromise the current claims of other company creditors or related stakeholders.
This plan explicitly does not insure secured creditors of the Hong Kong Based airline, in particular, the airline’s largest lender (who are involved with aircraft financing).
New Capital Injection from the “New Investor”
As part of the airline’s restructuring regime, the new ordinary shares of the airline represent at least 94% of the issued shares of the airline. They will be issued as the New Investor.
The ‘New Investor’ will receive the shares in exchange for a new equity investment of approximately three billion Hong Kong dollars.
Latest Updated on Fleet Restructuring
Hong Kong Airlines’ fleet comprises 53 aircraft.
The bank, which is stated as the airline’s largest creditor, which Hong Kong Airlines reports it has been in separate negotiations, is revealed to be the lender to 13 special purpose borrower subsidiaries of the airline.
This will, in turn, use their loan proceeding to buy 13 new aircraft and lease them back to HKA with Beijing Capital Airlines as a co-lessee. Under this current round of the restructuring plan, the airline plans to retain six aircraft.
The airline also plans to retain 14 other leased aircraft, which will raise the total number of aircraft that the airline wishes to retain to 20. The 14 aircraft are leased from the three lessors under operating lease agreements, respectively.
For the remaining 26 aircraft, the airline will retire or return them to the lessor.
The airline’s financial situation started to ail in 2018, and it was expelled by the Hong Kong protests and the Covid-19 pandemic. Some say restructuring was inevitable even before the pandemic.