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HNA bids for Swiss caterer in yet another international M&A deal

A Hainan Airlines plane takes off from the Sanya Phoenix International Airport in Sanya

Flying out of Hainan

When we first mentioned Hainan Airlines in WiC52, the airline was facing a three-pronged attack from China’s largest carriers – Air China, China Eastern and China Southern – after slashing prices on popular routes.

Six years later Hainan Airlines is still trailing the big three but its parent HNA Group shows no sign of giving up the fight.

China’s ‘one airline, one route’ policy for international flights is frustrating for Hainan because it locks the country’s fourth-largest carrier (by fleet size) out of flying to higher-profile destinations like New York and Los Angeles from the key Chinese cities – since its competitors already serve those points.

The airline has responded by developing a network of secondary destinations in the United States, including Boston and Seattle. And HNA Group has lost none of its ambition either, stepping up its focus on investment overseas.

In the latest of a series of overseas aviation deals, HNA agreed a $1.5 billion bid for in-flight catering firm Gategroup last week, which is now pending approval from the Swiss firm’s shareholders. If successful, the bid marks HNA’s second purchase in Switzerland this year, after the $2.8 billion acquisition of airport services company Swissport was finalised in February.

This followed its investment in France’s Aigle Azur (see WiC174) and the purchase of Irish aviation leaser Avolon in 2015. Last November HNA also bought a large stake in Azul, Brazil’s third largest airline, and this week was reported to have put in a bid for UK-based Monarch Airlines.

In fact, HNA and its related companies have announced takeovers and investments worth at least $19 billion since 2009, according to data from Bloomberg. Much of the spending spree is aviation-related, although some of the other deals look more like outliers.

In February HNA bought Ingram Micro, a distributor of hi-tech products, in a $6 billion takeover aimed at boosting its logistics skills. Last week it agreed to buy International Currency Exchange (ICE) for an undisclosed amount. With a network of over 350 branches and bureaux in 70 airports, the London-based ICE is one of the world’s largest currency exchange retailers.

Earlier this month, HNA also paid $340 million to Blackstone Group for a 60% stake in Hong Kong-listed construction firm Tysan, a move that analysts believe could pave the way for a backdoor listing for HNA.

Zheng Lei, co-founder of the Institute for Aviation Research, said the purchases conform to HNA’s goal of ascending into the higher rankings of Fortune 500 companies by 2020. “[In order to reach the top 100] they need to maintain an annual revenue growth of 25% in the next five years. It’s unlikely to realise the goal organically, and aggressive acquisitions put them on the fast-track,” he told the Nikkei Asian Review.

How HNA is financing its spending spree is more of a mystery – when Nikkei asked how the ICE acquisition was funded, the acquirer declined to comment – but the Financial Times notes that the surge in activity puts Chen Feng, HNA Group’s chairman, in a similar bracket to the acquisitive bosses at firms such as ChemChina (see WiC313) and Anbang Insurance (see WiC318).

Because of the high-profile ‘One Belt, One Road’ initiative, most of the media attention has focused on state-backed funding for overseas infrastructure projects. But the Chinese have a keen interest in developing their aviation sector as well.

There are moves afoot within the industry to improve service quality and HNA’s Chen has talked in the past about how his conglomerate’s investment programme is designed to create a world-class entity. “All these investments were accomplished by the group, but the purpose is to develop our aviation business globally,” Hainan Airlines chairman Xin Di also told the China Daily last year.

Give it a few more weeks and we’ll probably have another HNA acquisition to report. But whether what is being created is a coherent whole or a financial hole remains a point of debate among analysts.

 

Keeping track: Our prediction that it would likely only be “a few more weeks” before it announced another M&A deal was on the money, as on April 27 the Hainan-based conglomerate further beefed up its international tourism portfolio with the purchase of Carlson Hotels, owner of the Radisson hotel chain. The Chinese firm is buying 100% for an undisclosed sum and will add to its own network Carlson’s 1,400 hotels in 115 territories employing 90,000 staff. HNA Tourism’s CEO Bai Haibo told Reuters the firm would build on the well-known Radisson brand to help “establish our presence in the US market and expand our footprint in hospitality internationally”.


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