For Hong Kong Airlines the death watch clock is officially running. The beleaguered company has just five days to raise significant fresh capital. Failure to reach that goal will likely see the airline’s operating certificate revoked.
Hong Kong’s Air Transport Licensing Authority (ATLA) issued an update on Monday, requiring that the carrier find new cash by 7 December 2019.
After careful consideration of the financial position of HKA at present, ATLA must take immediate and resolute action to prevent further deterioration of HKA’s situation in order to protect public interests. In accordance with the two new license conditions attached by ATLA, HKA must, by a deadline set, ensure cash injection at a level determined by ATLA (or provide an alternative to the satisfaction of ATLA), and raise and maintain its cash and cash equivalent level as stipulated by ATLA.
If HKA fails to improve its financial situation as required by ATLA by the deadline, ATLA will take further action under Regulation 15E of the Regulations, which provides for revocation or suspension of license. ATLA would announce its decision by December 7, 2019.
Multiple regulators concerned with Hong Kong Airlines’ finances
Just 20 minutes after ATLA issued its notice Hong Kong’s Transport and Housing Bureau (THB) followed with a statement of its own. The THB notes it “has been gradually scaling down HKA’s operation in the hope that HKA’s situation would be under better control,” and reminds Hong Kong Airlines of its obligations to passengers and crew. Moreover, the THB endorses ATLA’s decision to impose further restrictions on the airline.
The THB concurs with ATLA’s decision and considers that HKA must face up to its problems seriously and use its best endeavours to meet ATLA’s requirements by the deadline in order to prevent its situation from further deteriorating and to protect public interests. The THB has also reminded HKA that before any further decision of ATLA is made, it must continue to provide services to its passengers in accordance with the terms and conditions of air tickets concerned.
Just three minutes after that the Civil Aviation Department (CAD) added its views on the issue. It calls attention to CAD’s role in ensuring that the “Air Operator’s Certificate (AOC) holder is competent, having regard to his equipment, organisation, staffing, maintenance and other arrangements, to secure the proper and safe operation of his aircraft registered in Hong Kong for the purpose of public transport.” The CAD also points out that it can revoke the AOC, separate from ATLA’s ability to revoke the operating license.
On the safety front CAD indicated that it has “enhanced monitoring on the airline’s flight operations and aviation safety since mid-December 2018” and conducted about 180 scheduled and unscheduled checks of the airline since then. That’s roughly one check every other day for the past year.
Can Hong Kong Airlines find the cash to remain in business?
The carrier has been on the brink since December 2018 and its main shareholder, HNA Group, has thus far declined to pump more cash into the operation. Whether that changes now as the airline truly faces its demise remains to be seen. But given HNA’s overall cashflow challenges it seems an unlikely outcome. And given the softening demand for services to or via Hong Kong, as well as the carrier’s shrinking route network, even a fresh cash supply might not be enough to right the operations.
The THB’s note that it required the airline to shrink in hopes of salvaging the operation is also telling in many ways. That approach rarely works for airlines, especially when they’re already relatively small.