Hong Kong Airlines announced its debt restructuring plan had been approved during Creditors Meetings held on December 1st, according to its official press release. This means that Hong Kong Airlines is expected to avoid liquidation.
The restructuring plan will be subject to the subsequent approval and sanction of the Hong Kong Court and the English Court, respectively. The sanction hearing of the Hong Kong Court was re-listed on December 14th, and the sanction hearing of the English Court was listed on December 9th.
The plan was on the edge of a cliff
Hong Kong Airlines published its restructuring plan under Part 26A of the Companies Act 2006 of the United Kingdom on its official website on September 27th.
According to the plan, Hong Kong Airlines, owned by Hainan Airlines Group, is seeking to restructure its 49 billion HK dollars (US $6.24 billion) of debt through courts in the UK and Hong Kong to avoid liquidation.
Out of Hong Kong Airlines' total debt of 49 billion HK dollars, aircraft lessors are owed 22.5 billion HK dollars (US $2.87 billion), banks and financial institutions 5.7 billion HK dollars (US $730 million), and related parties 6.8 billion HK dollars (US $870 million). The plan includes a significant write-down of outstanding debt.
The restructuring plan required 75% creditor support, and Hong Kong Airlines said in October that it had received approximately 73%.
Hong Kong Airlines tried to earn more support for the plan from the creditors by offering to pay more cash upfront to 'secured creditors,' up 2.5 percentage points to about $45 million.
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The details of the plan
Firstly, Hong Kong Airlines will downsize its fleet by about two-thirds if the plan is approved. Hong Kong Airlines currently has 47 aircraft and consists of 25 Airbus A320s, 21 Airbus A330s, and one Airbus A350. It has been reported that it will get rid of all its widebodies, while some argue that it is essential for some of its profitable international routes, like Hong Kong to Tokyo and Osaka.
Secondly, Hainan Airlines Group and its anonymous joint venture partners plan to inject 3 billion HK dollars (US $380 million) into the airline to tide it over.
Lastly, Hong Kong Airlines said unsecured creditors and key leaseholders are expected to recover about 5% of what they are owed, with pro-rata payments for the remainder once they have weathered the storm.
Future of the Hong Kong Airlines
After more than a month of negotiating, the results reveal that the plan received an 80% to 100% support rate for all three types of creditors, which will likely help Hong Kong Airlines avoid liquidation.
Hong Kong Airlines has been using its A330-300 to fly to Osaka after both Hong Kong and Japanese governments loosened restrictions. The booming travel demands will bring income to the airline but, more importantly, confidence to the creditors.
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The Chinese government showed signs of lifting its strict COVID prevention policy recently. If the Chinese mainland market returns to pre-pandemic levels, Hong Kong Airlines will face a much better situation rather than relying only on Hong Kong customers.