In a sign the Covid-19 epidemic is hitting the aviation leasing sector, China is in talks to seize control of troubled conglomerate HNA Group, the majority shareholder of Irish aviation lessor Avolon, Bloomberg reported recently.
The government of Hainan, an island province in the south where HNA is based, may sell off the airline’s assets after the outbreak of the coronavirus on mainland China hurt the airline’s ability to meet its financial obligations, according to the report citing people familiar with the plans.
The HNA Group has interests in several airlines, these include Hainan Airlines, Hong Kong Airlines, Tianjin Airlines, Beijing Capital Airlines, Lucky Air, Suparna Airlines, Fuzhou Airlines, West Air, Urumqi Air, Air Guilin, GX Airlines and Air Changan.
HNA Group is Dublin-based Avolon’s biggest backer.
Avolon’s is 70% owned by an indirect subsidiary of Bohai Leasing Co Ltd, a public company listed on the Shenzhen Stock Exchange and 30% owned by ORIX Aviation Systems, a subsidiary of ORIX Corporation which is listed on the Tokyo and New York Stock Exchanges.
HNA is a majority shareholder in Bohai Leasing. Avolon operates as an independent company from HNA and has a robust shareholder framework between Bohai Leasing and ORIX.
The Irish Times reported that news of a potential takeover emerged as Avolon announced it was borrowing $620m (€575m; £480m) through a bonds issue via two newly established special purpose companies (Sapphire Aviation Finance LLC and Sapphire Aviation Finance Ltd), with a 2040 redemption date.
In a press release, Avolon said the bond issuance is backed by a portfolio of 21 aircraft, valued at a total of $746.8m (€682m; £579m) and leased internationally. The release said: “The Portfolio comprises a mix of 21 narrow-body and widebody aircraft that have a weighted average age of 7.5 years and are on lease to 19 lessees/airlines based in 18 countries.”
Dómhnal Slattery, chief executive of Avolon, said: “This transaction follows the successful launch of our Sapphire vehicle in 2018 and we are particularly pleased with the yield for this issue, which is the lowest debt yield of any aircraft ABS issuance over the last decade. Investor demand for this issue reflects our standing in the capital markets and further builds on Avolon’s reputation as a leading ABS servicer.”
Bloomberg reported that HNA Group’s airline shares would likely be sold to China’s three top carriers: Air China, China Southern Airlines and China Eastern Airlines.