Who is the “Dignity” of the China Aviation Acquisition Industry?
With the Asia-Pacific to China and India-based new economic development, there is now more air traffic on the US-Asian Pacific routes than on the Atlantic routes between Europe and the United States. On July 27, 2015, China Eastern, announced that they have signed a conditional share purchase agreement with Delta Airways. Delta has invested US $ 450 million to purchase H shares of China Eastern listed on the Hong Kong Stock Exchange, and now holds 10% of H shares and 3.55% of the total shareholding,. In addition to the Eastern Group and its affiliated companies, it became the largest external shareholder. In accordance with the agreement reached, Delta gained access to the China Eastern board of directors with an observer seat, that allows Delta without voting rights to attend the board and the Planning and Development Committee meeting.
On March 28, 2017, China Southern and American Airlines, officially signed the "Framework Agreement", "Share Subscription Agreement” , a series of business cooperation agreements, and launched a "major strategic cooperation". US Airlines spent $200 million to get 2.67% of China Southern trading shares. The agreement, involving the sale of a 2.67 percent stake to American, and the broader cooperation are subject to regulatory approvals, China Southern said in a stock exchange filing in Hong Kong. This is the second time since July 2015, the two major airlines have reached such a transaction.
There are comments that the transaction is only the surface work to some extent, as the whole aim is to achieve code sharing in order that they can take more passengers to the airlines of United States. Is this just surface effort? Regardless of the previous $450 million Delta Airlines and China Eastern shares subscription agreement, or the recent American / China Southern Airlines shares subscribed, the three state-owned airlines were required that their state-owned shares must be 50% minimum, in accordance with any state-owned equity structure that limits the subscription agreement. Therefore, from a certain point of view, we can assume that there is no more space for capital increase. However, foreign airlines keep working on such kinds of acquisitions, apparently, they can see that it helps to lay the groundwork for a full-blown relationship for both sides by gradually establishing a long-term, comprehensive strategic partnership. They aim to achieve mutual support between the Chinese and US market by making deeper use of both of their airlines’ networks. The content includes but is not limited to the following aspects: the implementation of code sharing cooperation, the extension of the route network to more cities in both China and the United States, hub construction, personnel exchanges, code sharing, sales cooperation, airport facilities sharing, IT system development, field in-depth cooperation and so on.
Compared to the acquisition of state-owned shares of foreign airlines, presently, the leader in overseas acquisitions is the HNA Group in China Aviation Group.
Hainan airlines, as one of China's most acquired overseas traders, was established in 1993 by co-founder and chairman Chen Feng. Hainan airlines announced that they have made 20 billion US dollars’ transactions in 2016. In addition to buying airline assets, HNA group has been investing in other tourism-related businesses, including Gate Group Holdings and Ingram Micro, an American-listed electronics distributor, control ling 11 stores in mainland China and Hong Kong . In 2016, HNA Group invested in a 25% stake in the Hilton Hotel Management Group, introducing international advanced hotel management experience. With the world's largest airport ground service and freight forwarders Swissport, HNA Group improves the upstream and downstream of the aviation industry chain. In addition, HNA Group’s Avolon Holdings, who agreed to purchase value US$10 billion of the CIT Group (CIT.N)‘s aircraft leasing assets, became Deutsche Bank's largest shareholder. On December 2016, HNA Group spent $ 4 billion to complete the acquisition of the world's largest IT product distributor Ingram Micro.
According to the British Sky News report, HNA Group, which has spent huge sums of money in global acquisitions, has hired an investment bank to work on its possible acquisition of Monarch Airlines in UK. Monarch is owned by private investment firm Greybull Capital, and Greybull has started negotiations with HNA Group on the sale of part of the shareholding. If the deal is completed, it could be the largest investment by China's major airlines to date.
Hainan Airlines is a seven-time recipient of the SKYTRAX five-star airline award, which recognizes the highest standards of airport and on board product provided by an airline to customers, together with consistent and high standards of front-line staff service across the airport and on board service environments. It has also been ranked third on the Jet Airliner Crash Data Evaluation Centre (JACDEC)'s 2016 list of the World's Safest Airlines. This ranking is the best achieved by a Chinese carrier.
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