The lessors exposed to Hainan Airlines’ financial woes

In April HSBC contended that the Chinese airline market was ripe for another round of consolidation, nearly 20 years after it saw a massive shake-up.

The report states that it does not “rule out the possibility of further consolidation”, noting that the three largest Chinese carriers — Air China, China Southern Airlines and China Eastern Airlines — would likely lead any such effort.

The researchers also singled out the country’s fourth largest carrier, Hainan Airlines, as a target for consolidation thanks to its well-publicised financial woes.

Media reports earlier this year have also suggested that one, or more, of the three largest Chinese carriers might absorb Hainan’s operations. There has been no confirmation so far about such a move.

Hainan parent HNA Group also sought the help of the Hainan provincial government to turn its misfortunes around. A “joint working group” has been formed to help HNA with risk disposal, which has increased further due to the coronavirus outbreak.

Among the working group’s aims are “implementing dynamic management control” to whip finances back into shape, as well as creating operating policies to improve the competitiveness of group airlines. 

As for Hainan, it fell back into the red for its first-quarter financial results with the pandemic depressing travel demand. It saw traffic for the period fall dramatically, and also removed two aircraft in March.

Cirium fleets data indicates Hainan to have 232 aircraft in total, of which 161 are in operation, and the rest in storage. It also has 30 aircraft on order, comprising Boeing 737 Max 8s, Comac C919s, as well as one Airbus A330 and A350 respectively.

Hainan itself owns 92 of these aircraft, or about 40% of the fleet. These mainly comprise 737-800s and 787s.

The rest of the fleet are placed among 21 lessors. Based on indicative lease rates, Hainan’s montly lease payments amount to $54.9 million. 

Source: Cirium fleets data

Among lessors with highest exposure to Hainan’s financial woes are BoComm Leasing and GECAS, at 25 and 23 aircraft respectively.

Meanwhile, Avolon has the most lease rentals to lose if Hainan is unable to make payment for its aircraft.

The lessor has 13 aircraft with the Chinese carrier, comprising seven 787-9s, three 737-800s, as well as one A330 and two A350-900s. The combined indicative lease rentals of these aircraft at $8.73 million per month, the highest amount any lessor commands from the carrier.

Other lessors with significant amount of lease rentals include BoComm at $8.61 million, as well as GECAS at $6.95 million.

The lessor with the lowest amount of lease rentals is Haitong UniTrust International Leasing, for which the figure stands at $262,000. The lessor has just one 737-800 placed with Hainan.

Most of the lessors have exposure to narrowbody aircraft, with the exception of 12 who also have riskier widebody aircraft exposure. In that sense, Avolon is most exposed, as 10 out of 13 of its aircraft with Hainan are widebodies.

It is unclear if Hainan can get itself out of its dire financial situation, even amid swirling rumours of a takeover. The carrier itself is upbeat about future prospects, promising a overhaul in business strategy. But if it does go under, it remains to be seen how much lessors can get back in its lease bills. 

This story has been amended to reflect the correct lease rates.