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HNA Group on the acquisition trail

11-Aug-2011

HNA Group is one of the most fascinating growth stories in Chinese aviation, tourism and related sectors. Having aggressively expanded its asset base, integrating both horizontally and vertically over the past decade, HNA has become one of China’s leading conglomerates, with extremely diversified revenue streams, geographic spread and exposure to many fast-growing sectors of the powerhouse Chinese economy.

The company is now increasingly looking internationally, with a series of recent and planned acquisitions, mainly centred around freight, airport and MRO operations. These acquisitions, as is the case with the majority of HNA's strategic decisions, is part of the company’s longer-term vision to “become a cornerstone operator in the global aviation industry”.

Bidding for Hochtief Airport assets

HNA Group this month confirmed the carrier is bidding for assets put up for sale by Hochtief Airport Ltd Co, the airport unit of Hochtief AG, as it seeks to expand its presence in Europe. Bids for the assets are expected to exceed USD1 billion. Should HNA Group succeed in its bid, it will be able to deepen its network in Europe and avoid direct competition with Air China, which has its European hub in Frankfurt.

HNA Group executive director Adam Tan stated HNA Airport Group is among the four to five bidders that have been short-listed to move to the second round of bidding for Hochtief's airport assets. "The deal may have to go through another round of bidding and we expect the seller to assign a winning bidder within two months," Mr Tan said.

According to reports, HNA Group will be competing with Singapore's Changi Airport Group, French group Vinci, a consortium led by GIP and Allianz, and a group led by Fraport and Deutsche Bank. Should HNA Group succeed in gaining control of Hochtief Airport, it will obtain equity stakes in the international airports of Athens, Dusseldorf, Hamburg, Tirana, Budapest and Sydney.

HNA Group will bid for Hochtief Airport through its subsidiary, HNA Airport Holdings (Group). HNA Group holds a 51% stake in the subsidiary, while Hong Kong Pacific Fund Management and Asian Development Bank jointly hold the remaining 49% stake.

At present, HNA Group owns Hainan Meilan International Airport, Gansu Airport, Sanya Phoenix Airport, Dongying Yongan Airport, Manzhouli Airport, Yichang Sanxia Airport, Dunhuang Mogaoku Airport, Qingyang Xifeng Airport, Lanzhou Zhongzhou Airport, and Jiayuguan Airport. All these airports will be injected into Meilan Airport and will be listed on the A share market, as planned by HNA Group.

The bidding is the latest development in Hainan provincial government-backed HNA Group's push to expand overseas amid falling global asset prices. Mr Tan noted that recent stock market volatility and a slower global economic recovery amid lingering concerns about the health of the US economy and the European debt crisis would not deter the group's plan to expand abroad. In fact, HNA Group noted that as the economies of Europe and the US are sluggish at present, it may be able to purchase airport-related assets at relatively lower prices as part of its global expansion strategy.

Interested in BAA

HNA Group, in Mar-2011, also expressed an interest in acquiring a 10% stake in Ferrovial unit BAA Airports Ltd, according to a Sky News media reported. Ferrovial may reportedly value the stake at around GBP300 million. Ferrovial is planning to sell a 10% stake in BAA.  HNA is reportedly one of a number of parties interested in the stake.  

Ferrovial holds a 55.87% stake in BAA. The remainder is split between Britannia Airport Partners, which holds 26.48%, and GIC, which has 17.65%. Ferrovial took BAA in 2006. It announced in Oct-2010 that it would sell a minority stake in BAA in order to fund infrastructure projects and pay down debt.

HNA Group acquires GE SeaCo from GE

Earlier this month, General Electric Co CEO Jeff Immelt confirmed the company had agreed to sell GE SeaCo, the company’s shipping container lessor and the world's fifth largest container lessor, to HNA Group and Hong Kong’s Bravia Capital for USD1.05 billion, or around USD2.5 billion including debt.

GE will receive around USD500 million from the deal, which includes some assets owned by the company and SeaCo Ltd that are managed by GE SeaCo. SeaCo will receive around USD528 million.

HNA Group acquires 49% stake in ACT Airways for USD25m

In late Jul-2011, HNA Group announced a partnership deal with ACT Airways, an Istanbul-based cargo operator, involving the acquisition of a 49% stake in ACT Airways by HNA Group for a total consideration of USD25 million.

The transaction represents the strategic expansion of HNA's global footprint into the high-growth marketplace of Turkey and surrounding regions, and allows HNA to develop a cargo platform to capitalise on the growing Eurasian cargo traffic

The investment in ACT Airlines will help the carrier more than double its fleet to 10 freighters within two years, HNA said. HNA plans to change the company’s name to My Cargo in the near future and to add three new Boeing aircraft to enlarge the airline’s fleet.

Founded in 2004, ACT Airlines has developed a fleet of six A300 freighters and has been operating long-term contracts for customers such as DHL, Lufthansa, UK Ministry of Defence and Chapman Freeborn among others.

ACT Airlines will join a group of companies under the Grand China Logistics Group (GCL), the logistics arm of HNA. Created in 2007 as the first air-land-sea and conglomerate logistics company in China, GCL has total assets of over USD7 billion, and operates a cargo airline with 14 aircraft, several shipping lines operating a total of 100 ships in bulk, tanker and container segments under eight shipping companies and two shipyards.

Yangtze River Express Airlines Co Ltd. (YZR), the airline link of Grand China Logistics, has four B747-400 freighters and 10 B737 freighters. Operating nearly 30 daily services and with capacity of 700 tons, the company provides services both domestically and internationally. YZR operates domestically for UPS and other international express operators. As part of the GCL's growth plan the group has freighter aircraft orders including two A330s and 7 B777s.

Announcing the agreement, ACT Airlines CEO Daglar Cizmeci said, "We are very excited to be strengthening our partnership with HNA Group through their second investment in our group companies in the last six months. We believe that ACT Airlines is a perfect fit for Grand China Logistics' expansion plans outside of China and that ACT will benefit tremendously from becoming a part of the HNA family. As a result of this partnership, ACT will expand its fleet in the very near future and will also enhance the scope of its operating platform to include bases in Europe and Africa."

HNA Group also invests in myTechnic

HNA Group first entered Turkey through investment in Istanbul-based MRO company myTechnic in May-2011. HNA Group acquired a 60% stake in MyTechnic to enable Hainan Airlines to penetrate the aviation networks in Europe, Asia and North Africa.

HNA’s MRO division, Grand China Aviation Technik Ltd (GCA Technik), acquired the stake in an agreement along with Bravia Capital. Based in Istanbul, MyTechnic is located at Sabiha Gokcen International Airport.

"The acquisition is only the beginning of the company's expansion into a global MRO network, and our steps will be quickened," said Liu Qiang, general manger of marketing and sales department of GCA Technik. The purchase is the company's first overseas acquisition.

Meanwhile, Hainan Airlines launched services to Istanbul last month, with twice weekly Shanghai-Urumqi-Istanbul Atatürk service operated with twice weekly frequency utilising A330 equipment.  In 2010, bilateral trade volume between China and Turkey increased 49.6% year-on-year.

Interested in Hapag-Lloyd purchase

Meanwhile, TUI Group is reportedly negotiating with HNA Group, China Shipping Container Lines and the Sultanate of Oman for the purchase of the company’s stake in Hapag-Lloyd. However, negotiations are still at the initial stage with Hapag Lloyd reportedly stating there is still no real bidding process occurring and talks with the Chinese company were proceeding very slowly. Meanwhile, it has also been reported that Oman is currently not actively pursuing the agreement.

In late Jul-2011, it was reported that TUI AG was pushing back the deadline for the planned divestment of its 38.4% stake in Hapag-Lloyd again as it struggles to find a buyer, as per Reuters reports. Based on the reports, it is unlikely that a sale would be reached this autumn, and could now only occur in 2012.

If the market remains muted, TUI may use an option to sell its stake to Hapag-Lloyd's majority owner Albert Ballin, a group of Hamburg-based investors led by Klaus-Michael Kuehne, the majority owner of Swiss logistics group Kuehne & Nagel, in Jan-2012.   

HNA Group seeks to invest in Hungarian airline

In Jul-2011, HNA Group brand centre manager Wu Feng stated the company was seeking to become the first Chinese airline to invest in the European aviation sector by bidding for the financially troubled Malev Hungarian Airlines, as quoted by China Daily and South China Morning Post.

He stated that the impetus for the Malev investment was coming from HNA Group, adding that there had been no specific proposals involving the price or method of investment in Malev. Mr Wu said the Chinese and Hungarian governments had indicated support for the agreement although HNA still needs to hold further talks with Malev. Meanwhile, HNA Group is reportedly seeing to acquire at least part of List Ferenc Airport as part of the Malev acquisition, according to reports in Magyar Hirlap.

This is not the first time that HNA has approached the Hungarian carrier. In 2004, HNA Group showed interest in restructuring Malev but the Chinese side subsequently withdrew on concerns about Malev's debt.

However, HNA Group Chairman Chen Feng reportedly denied the reports about the potential Malev investment, as per a Xinhua report, stating the carrier was preparing to launch a new carrier in Hungary and not acquire an airline.

HNA Group signed a strategic agreement with the Hungarian Capital Association in Jun-2011 in one of a series of deals announced by Chinese Premier Wen Jiabao and Hungarian Prime Minister Viktor Orban. The countries also signed a general agreement to develop air and river transportation. It has also been reported that Chin and Hungary would jointly construct a rail link between Budapest International Airport and downtown Budapest.

The acquisition into or establishment of an airline in the Eastern European market is seen as a way for Hainan Airlines to enter the European market, and is seen as a better alternative than going directly into the more developed and competitive Western European market.

HNA Group acquires 20% stake in NH Hoteles; to develop four-star hotel chain in China

Also in Europe, and HNA Group acquired a 20% stake in Spanish hotel chain NH Hoteles for EUR431.6 million (USD621.9 million) at a price of EUR7 per share on 09-May-2011. HNA Group becomes the second largest shareholder in the company as a result of the acquisition. The two firms also plan to set up a JV for the development of a chain of four-star hotels in China.

NH Hotels COO Francisco Zinser in Jun-2011 stated "the only thing that we await concerning HNA Group's purchase of NH Hotels is the approval from Chinese departments concerned", in an interview with the 21st Century Business Herald.

NH Hotels is the third largest hotel management group in Europe, listed in Madrid, Amsterdam and New York.  NH Hotels ranks among the world's top 20 hotel groups, with 400 chain hotels, most of which are located in Europe. In 2010, it achieved a turnover of EUR1.322 billion. Ever since 2008, the group has been selling its hotel assets in order to reduce its large losses. 

The acquisition is in line with HNA Group's planning for business expansion. The group disclosed last year that the number of its hotels would reach 100 within three to five years.

Meanwhile, Hainan Airlines has recently listed a new service to Madrid from 19-Sep-2011, as per a Jul-2011 edition PDF timetable. The planned service to Madrid will be a tag on the existing Shanghai Pudong-Brussels route, operated twice weekly with A330-200 equipment.

In other recent European network news, Hainan Airlines launched three times weekly Beijing-Zurich service on 31-Mar-2011, marking the first service on the route for the past eight years. Zurich is Hainan Airlines' sixth destination in Europe after Berlin, Brussels, Budapest, Moscow, St Petersburg and Brussels. Swiss International Air Lines already offers a daily connection to China from Zurich, but serving Shanghai, rather than Beijing. China and Switzerland recently signed an expanded air services agreement.

HNA Group interested in acquiring stake in Metro-Goldwyn-Mayer: reports

Elsewhere, HNA Group in Mar-2011 reportedly stated it was still interested in acquiring a stake in Metro-Goldwyn-Mayer (MGM) after a failed bid last year. The acquisition would be consistent with HNA Group’s intention to expand its business in the cultural sector. It has been reported that the potential acquisition was encouraged by investor George Soros, who has had an ownership stake in Hainan Airlines since 1995.

About HNA Group

HNA Group is now a large multi-industry conglomerate company with a total asset base of approximately CNY201.5 billion (USD30 billion) and total revenue of over CNY64.7 billion (USD10 billion) as of Dec-2010. The company, based in Hakou and Beijing, owns three main pillar industries such as air travel industry, modern logistics industry and modern financial service industry, with substantial interests in aviation, logistics, finance, tourism, real estate, retail, airport management, and other related businesses.

HNA Group is also one of the more opaque aviation operators in China, with highly complex ownership and risk-sharing structures. HNA Group was established under the approval of the State Administration of Industry and Commerce in Jan-2000, following the restructuring of Hainan Airlines Company.

Following the 2000 restructure, HNA Group also took over the ownership of China Xinhua Airlines, Chang'an Airlines and Shanxi Airlines, to develop the fourth largest airline group in China, but without the privilege of majority state backing. The company’s Air Transportation Business branded as ‘Grand China Airlines’ now operates six airline companies, including the Hainan Airlines Company.

HNA Group aviation-related businesses: Summary

Subsidiary

Details

Grand China Air

The leading company within the HNA Group. Brands include Hainan Airlines, Shangxi Airlines, Chang’an Airlines and China Xinhua Airlines. These airlines are integrated with the unique code "HU" since 2002.  HNA Group also invests in other airlines, including Beijing Capital Airlines (70%), Lucky Air (67.95%), Tianjin Airlines (20%), Yangtze River Express (51%), Hong Kong Airlines (45%) and Hong Kong Express Airways (45%). HNA Group, in May-2011, also signed an agreement with Chongqing Yufu Company to Chongqing West Airlines Holdings.

HNA Tourism Holding Group

Responsible for the integration of tourism resources and development of tourism business under HNA Group. Aims at being the “leader, stipulator and largest operator in Chinese tourism market”. The headquarters of HNA Tourism Holding Group are based in Beijing, with total assets of over CNY10 billion. HNA Tourism Holding Group implements investment and management functions to its four industrial subsidiaries in tourism, hospitality, airlines and media.

HNA Airport Group

A key industrial group of HNA Group, the company was founded in Oct-2003 under the approval by the State Administration of Commerce and Industry. At present, the subsidiaries include 12 airports, including Haikou Meilan International Airport, Sanya Phoenix International Airport, Yichang Sanxia Airport, Gansu Airport Group (Lanzou, Dunhuang, JIayuguan and Qingyang), Weifang Nanyuan Airport, Dongying Yong'an Airport, Manzhouli Xijiao Airport, Anqing Airport and Lianyungang Airport.

Grand China Logistics

Registered in Shanghai on 13-Jan-2004, with registered capital of CNY245 million. It conducts domestic and international cargo and ground transportation services. Grand China Logistics Holding Co Ltd aims at becoming a “China-based integrated logistics provider of sea, land and air transportation for global customers with seamless and door-to-door qualify services”. The company focuses on the air and marine business. The company is planning to build branches in 14 major cities like Shanghai, Beijing, Xi'an and Tianjin, and the final expansion is aimed at covering 160 cities.

HNA Commerce Industry

Has subsidiaries including Xi'an Mingsheng Group, Baojing Shopping Group, HNA Duty Free and Shaanxi Jingzhong supermarket, among which both Xi'an Mingsheng Group and Baojing Shopping Group are listed companies. The total number of the outlets is 53 with total assets of CNY1.954 billion and annual revenue of CNY1.619 billion. The mid-term target of HNA Commerce Industry is to become a well known large commercial management group with revenues of around CNY10 billion, total assets of over CNY5 billion and over 100 outlets.

Supplementary companies

Other companies like HNA Finance Company Ltd., HNA Aviation Import and Export Company Ltd, HNA Systems Company Ltd are the supplementary businesses of HNA Group.

At the same time HNA Group also diversified its operations, and, with air transportation as its core business, now also covers Airport Management, Hotel, Logistics, Real Estate, Retail, Tourism and other related industries, for seven main business lines.

HNA Group businesses

Charging ahead with global expansion

HNA's vertical integration in one of the fastest developing sectors of the dynamic Chinese economy will make for spectacular growth rates in the near term. The group is reinforced by the diversity of geographic bases and broad segment coverage (eg business, leisure demand covering international, domestic and regional markets), as well as its risk-sharing partnerships, with the scope of its expansion accelerating again in 2011.


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