China's Hainan Airlines Group Buys Second Airport

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Last updated at: (Beijing Time) Monday, May 05, 2003

China's Hainan Airlines Group Buys Second Airport

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Hainan Airlines Group (HNA), China's fourth largest airline and a trailblazer of merger and acquisitions (M&As) in the civil aviation industry, is planning to buy Sanya Phoenix International Airport in Hainan Province.

The move is expected to trigger a series of ambitious M&As targeting poorly managed airports by the island-based airline, a HNA official said.

Sanya International Airport is one of two major civil aviation airports on the Chinese island province. Haikou Meilan Airport, which was the first domestic airport to be listed in Hong Kong, is also controlled by HNA.

Sanya International Airport had been losing money since it was first built a decade ago, according to Li Yun, vice-president of the airport.

By the end of last May, the airport was 520 million yuan (US$62.88 million) in debt and was embroiled in more than 140 actions launched by creditors, Li said.

"We struggled to keep operating, on the edge of closure, until HNA took over management," Li said.

HNA group managed the airport on behalf of the Hainan Provincial Government for about a year, according to Zhu Yimin, Chief Executive Officer of HNA. The provincial government allowed HNA to manage its State-owned stakes.

"We were babysitting the operation last year, but we are going to be the owner and make it one of our bases," Zhu said.

He said HNA submitted a merger plan to the General Administration of Civil Aviation (CAAC) for approval. The plan is to be released in June if it is passed by the CAAC, Zhu said.

Zhu said the merger could be finished before the end of this year, but declined to give details of the plan. However, insiders said that HNA is still negotiating with major creditors on purchasing their stocks at reasonable prices.

HNA has appointed a new chief to manage the airport in Sanya and restructured the management team, according to Wang Zhen, who is president of the airports in Haikou and Sanya.

Wang said HNA group has prepared well for the anticipated merger. It has set up a strategic partnership with Denmark-based Copenhagen Airports Corporation to improve management in line with international practices for domestic airports, according to Wang.

The company has also formed an airport management department to develop specialists in the field, Wang said.

Wang said HNA is also negotiating with two other airports on the mainland on M&As. One is in North China's Shanxi Province and the other in Northwest China's Xinjiang Uygur Autonomous Region.

The CAAC had banned mergers between airlines and airports before 2000, worrying that the combination may result in monopolies and limit competition among airlines, experts said.

However, the successful merger of HNA and Haikou Airport in 2000 and fruitful listing of the airport in Hong Kong last year prompted the CAAC to accept such M&As, they said.

The CAAC issued a series of policies on M&As last year, releasing the management rights for about 140 civil aviation airports across the country to provincial governments.

However, many local governments hesitated over taking on these airports because most of the operations were debt-ridden and required specialists in managing airports, according to a high-ranking official with the Hainan Provincial Government, who declined to be named.

The Hainan Provincial Government gave HNA the stamp of approval to manage the airport in Sanya and is confident the merger will be successful, the official said.

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