Not all of them take off
Chinese investment abroad started this last decade with strong growth. The acquisitions targeted technology enterprises as well as ports, airports and airlines. The overall development has slowed somewhat, and even regressed for the past two years. ITJ correspondent Armin F. Schwolgin has taken a look at the situation, analysed the causes and assessed whether the trend is set to continue.
We’ve learnt over the years that not all the foreign investment projects that the Chinese have undertaken of late have been successful. Examples include the small German airports of Lübeck and Parchim, as well as the HNA Group’s stake in the French airline Aigle Azur. The latter declared itself insolvent early in September.
Aigle Azur, which was established in 1946 and whose fleet encompassed eleven aeroplanes when it folded, was owned by three enterprises; China’s HNA Group (Hainan Airlines), with a 48% stake, David Neelemann (founder of Jetblue, 32%) and the Lu Azur group, headed by the French investor Gérard Houa, with a 20% stake.
Aigle Azur’s regional focus lay on French domestic destinations and on flights to and from Algeria, Mali, Senegal, Lebanon and Portugal. Its code-share agreement with its sister carrier Hainan Airlines also provided it with a link to Xian (China). From Basel / Mulhouse airport, for example, Aigle Azur served destinations in the Maghreb states. Crises in the Middle East, Algeria and Mali were naturally not exactly conducive to business success.
The eagle and the condor
The HNA Group’s entry as a strategic and financial investor in 2012 made a lot of sense at the time. The entry of Neelemann, the founder of the successful Azul Linhas Aéreas Brasileiras, as a second strategic investor put Brazil on the airline’s map. The HNA Group, in turn, holds a 24% stake in Azul.
The launch in 2017 of long-haul flights to and from Beijing and Campinas, near São Paulo, clearly represented this Sino-Brazilian relationship. Services to and from the Chinese capital were terminated in spring 2019, however; with those to and from Campinas coming to an end a little later, namely on 9 September 2019. The majority shareholder, the HNA Group, could not and did not want to do anything to alleviate Aigle Azur’s financial problems.
The HNA Group’s own liquidity problems have been simmering for a long time now. The company tried to remain solvent by selling assets, including stakes in Deutsche Bank and in Hilton Worldwide Holdings.
HNA Group straining to stay solvent
The HNA Group’s half-yearly figures for 2019 showed, however, that corporate liquidity and short-term investment has fallen by 61% year-on-year, but its debts only declined by 3%. A domestic loan could not be paid back on time in July; another loan was also not served, so that financial backers confiscated some golf courses and other assets.
Now it seems that logistics-related activities are also for sale, including HG Storage International, as well as the container-leasing enterprise Seaco. On top of this, core business activities from the aviation segment are also up for discussion. These include loss-making Hong Kong Express Airways, which in the meantime was sold to Cathay Pacific in March.
Even the group’s core brand, Hainan Airlines, has liquidity problems. This resulted in a court in the province of Shandong temporarily freezing almost one third of HNA’s shares, because it had not been able to fulfil obligations on time arising from leasing contracts. On top of this rumours concerning the sale of the ground-handler and air cargo specialist Swissport, which have been flying about since summer, have not abated yet either. The firm was only acquired four years ago.
Chinese government aware of risks
In December 2017 the Chinese government passed new ‘administrative measures for overseas investment by enterprises’; they’ve been in force since 1 March 2018. They affect new Chinese investments abroad. The aim of theses measures is to regain control of investments abroad, which had got somewhat out of hand since the beginning of 2010. Beijing has now obviously also taken the old adage on board that it’s not clever to throw good money after bad. The Chinese government has even been allowing controlled bankruptcy proceedings in the People’s Republic for some time now.
This fact made the end for Aigle Azur all the more inevitable.
