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MARCH 2019

Week 10


Qantas and Spring bids for HK Express would create regulatory dilemmas

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March 8th 2019

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Australia’s Qantas and mainland China’s Spring Airlines are said to have been interested in HK Express. Jetstar Hong Kong Mk II? Read More »

Hong Kong’s aviation policy and legal framework are in the spotlight. Prior to Cathay Pacific’s disclosure it was in talks to invest in HK Express, Qantas Group and Spring Airlines were also interested to acquire the Hong Kong LCC, according to sources familiar with the matter. Qantas Group and Cathay conducted due diligence while Spring had not. Qantas declined to comment while Spring could not be reached for comment.

Qantas could have been interested in a second attempt to have a Hong Kong-based unit of its Jetstar franchise. Jetstar has Asian units in Japan, Singapore and Vietnam. It announced in 2012 plans to establish a Hong Kong-based unit, Jetstar Hong Kong (JHK). A long regulatory process saw JHK rejected in June 2015. Spring Airlines has only one other foreign unit, Spring Airlines Japan, which has been languishing. Previously Spring expressed interest in establishing other units.

Reuters reported the HK Express-Cathay talks are now exclusive, but this has not been confirmed.

The possibility of two non-Hong Kong companies investing in HK Express raises the matter if a purchase would still see HK Express be deemed a Hong Kong-based airline.

Hong Kong differs from most of the world by not having rules about local majority ownership and control. Instead, Hong Kong requires local airlines to have their principal place of business (PPB) be in Hong Kong. This excludes mainland China.

JHK failed to meet PPB criteria. JHK did not receive a license. That decision – along with a growing slot shortage in Hong Kong – dissuaded other investors who were considering Hong Kong for a potential new airline.

The law on PPB is clear, but the interpretation is not. So there are questions how PPB could be interpreted in the future for HK Express or Hong Kong Airlines (HKA).

One question is how the process would begin. JHK’s PPB hearing came about because the airline was seeking a new license. A HK Express or HKA sale would transfer ownership of an airline with an existing license.

There are other questions: would PPB be interpreted differently for an existing airline already designated a local Hong Kong carrier? Would the distress situation see more lenient PPB interpretation than when JHK wanted to enter? Has Hong Kong’s own views on aviation competition and PPB interpretation changed?

The legal community has observed Hong Kong taking slightly more favourable approaches for companies based or strongly connected to mainland China. It is asked if PPB clearance might be given to Spring Airlines but not Qantas, all other matters the same.

HNA will need to weigh the seeming prospect of a relatively fast and easy sale to Cathay versus a long and uncertain regulatory process if sold to a non-Hong Kong company.

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