HNA romances “Trump Corp” as shopping spree accelerates

by DOMINIC LALK  

February 1st 2017

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There is no end to HNA Group’s desire for global assets despite reported gearing of close to 150% and borrowing costs estimated at an annual eight per cent a year. Read More »

One of the group’s latest targets is a majority holding in SkyBridge Capital, the investment firm founded by Donald Trump adviser, Don Anthony Scaramucci. SkyBridge’s offerings include various hedge fund products, customized separate account portfolios and “sophisticated alternative” hedge fund advisory services. It managed or advised approximately $12 billion in assets as of November 2016.

While the deal could provide a useful link to the new White House, HNA Capital’s equity in SkyBridge also will help HNA expand its nascent financial empire of asset management, life insurance, peer-to-peer lending and, importantly, aircraft leasing.

“Our investment in SkyBridge is an important step in HNA Capital’s strategy to build a global asset management business,” said Guang Yang, CEO of HNA Capital U.S.

In an interview with the Financial Times in January, HNA’s chairman, Feng Cheng, who founded the empire 24 years ago, said the group’s shopping spree would “of course” continue in 2017.

“With such a good opportunity now in M&A, if we’re provided with the chance of global good-quality assets that benefit our core business, of course we have to do M&A,” said Chen. “Otherwise it’s a lost opportunity.”

A Lufthansa air transport management graduate and an MBA in air transport from Maastricht university in the Netherlands, Chen told the Financial Times: “The more money the Chinese have, the more they go all around the world. Any country that does not have Chinese tourists has a problem.” He added aviation development was the only realistic means to achieve it.

HNA Group and its numerous subsidies kicked off 2017 with the $460 million purchase of New Zealand’s largest non-bank lender, asset finance firm UDC. It said the purchase promised significant growth opportunities in Australia and New Zealand and would create synergies in its leasing business.

At the same time, HNA tripled the size of its Hong Kong headquarters not long after it had agreed to pay an above the market price of $1.84 billion for two residential sites at Hong Kong’s former Kai Tak Airport. At press time, the group secured a third Kai Tak site, for US$713.5 million.

The group has bought Ingram Micro Inc., the world’s biggest computer and software distributor for $6 billion and spent another $6.5 billion for 25% of Hilton Worldwide Holdings Inc. Late last year, HNA acquired Carlson Hotels (Radisson, Radisson Blu, Park Inn, etc.) and paid for 51% of Rezidor Hotels.

Also in 2016, HNA became the sole owner of lessor, Avolon Holdings, for $7.6 billion, which made Avolon the fourth largest lessor in the world. With the agreement to acquire CIT Group’s aircraft portfolio in October for $10 billion, HNA is now the world’s number three aircraft lessor. Chen Feng said he aimed to overtake GE Capital Aviation Services and AerCap Holdings to become the biggest lessor on the planet.

Earlier last year, in May, the group bought part of Virgin Australia Holdings Ltd and four months later took equity in Azul Linhas Aéreas Brasileiras SA, Brazil’s third-largest airline. In between times it swept up ground handler, Swissport International, and Swiss airline caterer, Gategroup Holding AG.

Former Civil Aviation Administration of China and World Bank official Feng launched Hainan Airlines in 1993 with two aircraft and registered capital of 10 million yuan ($1.45 million). The airline, named after its island home base off southern China, found friends in the right places and quickly developed the airline and its related businesses.

Its big breakthrough-accompanied by global headlines – came in 1995 when legendary U.S. investor, George Soros, used his hedge fund, American Aviation LLC, to invest $25 million in the young airline. It was unheard of at the time for a foreigner to risk an investment on the Mainland, let alone with such a young business as Hainan Airlines.

The carrier added Bombardier Learjet 55 private jet operations to its portfolio and by 1998 had become the first Mainland airline to acquire equity in an airport when it purchased 25% of Haikou Meilan International Airport.

Twenty two years on, Hainan Airlines and its parent, the 17-year-old HNA Group, are hell-bent on becoming the largest aviation group in the world. With more than $100 billion in assets, the group exceeds Boeing’s market valuation.

In 2014, HNA was number 464 on the Fortune 500 list of the world’s largest companies by revenue. It has more assets than any U.S. carrier and is bigger than Europe’s market leaders Deutsche Lufthansa AG and International Airlines Group (IAG) combined. Last year, it leapt to number 353 on the Fortune 500 List and has its sights set on a top ten ranking within the next decade.

Orient Aviation understands Hainan Airlines is in advanced negotiations to acquire slots at London’s Heathrow Airport after applying for traffic rights for three times a week Chengdu-London and also three times a week Shenzhen-London flights, flying either A330 or B787 aircraft. Its airlines already operate to Berlin, Brussels, Budapest, Prague, Manchester, Moscow, St. Petersburg, Paris, Rome, Zagreb, Copenhagen and Madrid. All it needs is a good grip on the Star Alliance hubs in Frankfurt, Munich, Vienna, Zurich and Stockholm.

Industry insiders also speculate that HNA might add a global distribution system (GDS) to its portfolio this year, even if it means going head-to-head with China’s state-owned monopoly GDS, TravelSky Technology Ltd.

At $19.2 billion, Amadeus might prove too big even for HNA, but Dallas-headquartered Sabre Corp. at $7.1 billion might be persuaded to sell for a premium. In late December, HNA signed its first deal with Sabre, when it bought the technology solutions provider’s AirVision Planning & Scheduling and AirCentre demand forecast and scheduling tools. Separately, HNA is rumoured to be interested in German logistics giant, DHL, and railway colossus, Deutsche Bahn.

As of January 2017, HNA Group carriers had a fleet of more than 1,300 aircraft, serving more than 1,000 routes and nearly 280 cities. It operates and manages Hainan Airlines, Tianjin Airlines, Beijing Capital Airlines, Deer Jet, Lucky Air, West Air, Fuzhou Airlines, Urumqi Air, Air Chang’an, Beibu Gulf Airlines, Yangtze River Express, Guilin Airlines, GX Airlines, Grand China Air, HK Express and Hong Kong Airlines.

Kunming-headquartered Lucky Air, a domestic and international low-cost carrier, announced in December that it was in the final stages of setting up a new budget airline out of Chengdu. The new carrier will be called Shenniao Airlines, translated as “sacred bird airlines”. Lucky Air will hold 35% of the carrier, with Yunnan Xiangpeng Investment Co. and Chengdu Communications Investment Group Co. holding 45% and 20%, respectively. With a start-up capital of $436 million, Shenniao will be the ninth airline to set up in Chengdu.

In 2017, HNA’s airlines plan to play a bigger role in advancing Xi Jinping’s Belt and Road Initiative, according to Huang Qijun, deputy CEO, president of investments and board director. “We will launch more routes connecting China with the Belt and Road countries, help our counterparts build and manage airports to improve local transportation services, and introduce high-end tourism routes with distinguished Silk Road features,” Huang said.

Both full-service and low-cost HNA carriers have announced significant schedule additions for 2017, notably with links from the Mainland to Europe, Central and Western Asia, the Indian Ocean and South and Southeast Asia.

HNA Group close to sealing German airport purchase At press time, Mainland China’s HNA Group was reported by Hong Kong media to be in the final stages of negotiations for the acquisition of 24-hour loss-making Hahn Airport, a former western Germany  military airport that is now a secondary cargo and LCC facility. News agency Reuters said ADC, a German company, is HNA Group’s partner in the negotiations. The two provincial states that own the airport, Rhineland-Palatinate (82.5%) and Hesse (17.5%),  have been involved in the disposal of the airport sale, which had attracted two other bids apart from ADC/HNA Group. After auditors reviewed the three offers, Rhineland-Palatinate decided to enter into finale negotiations with ADC/HNA Group, said Reuters.   The negotiations are the second attempt by the airport’s owners to sell the airport. Last year, Shanghai Yiqian Trading Company agreed to buy the airport, which has Ryanair and Wizz Air as clients, for US$14 million. The deal collapsed when the Mainland aviation and logistics group failed to make any payments to the Rhineland-Palantinate and Hesse government owners. Hahn airport opened for civilian operations in 1993. It reached its high water mark in operations and income in 2007 when it handled four million passengers. In its latest set of reported figures, for 2015, Hahn airport processed 2.7 million passengers for the year, but it made a loss of almost $18 million for the 12-month period.