Seven Hong Kong Airlines planes seized after missed payments

Singapore

EMBATTLED Hong Kong Airlines had seven of its planes seized by the city's Airport Authority after it failed to make some payments, deepening concerns about a carrier whose financial difficulties nearly cost the carrier its flying licence recently.

The seizure was made in accordance to the Airport Authority Ordinance, the government body said in an e-mail on Tuesday, citing a section of the rules that addresses overdue charges. The statute allows the authority to sell the planes if it's not repaid within 60 days of the detention.

Hong Kong Airlines, whose fleet consists of 39 Airbus planes, said that some of its aircraft have not been scheduled for operation and were suspended from service under the Airport Authority's arrangement. The company's operations remain normal, it said.

The move is the latest sign that Hong Kong's aviation sector, Asia's busiest for international traffic, is facing its toughest year since the global financial crisis after months of anti-Beijing protests drove away visitors and tipped the city's economy into recession. Cathay Pacific Airways, Hong Kong's dominant carrier, has warned that it is bracing for a significant deterioration in earnings.

"Typically, aircraft being seized is a prelude to operations being shut down" for an airline, said Paul Yong, an analyst at DBS Group Holdings in Singapore. "Load factors are running below breakeven, so carriers are losing money on flights in and out of Hong Kong. So what's happening at Hong Kong Airlines is not surprising."

For closely held Hong Kong Airlines, which was struggling even before the demonstrations flared in June, the seizures show the carrier continues to grapple with liquidity challenges despite averting closure.

Neither Hong Kong Airlines, which is backed by Chinese conglomerate HNA Group, nor the Airport Authority elaborated on the missed payments but the South China Morning Post reported earlier that the company could owe between HK$11 million (S$1.9 million) and HK$17.2 million in parking and other fees.

Hong Kong Airlines averted becoming the first carrier to collapse in the city in more than a decade after the Air Transport Licensing Authority said on Dec 7 that it wouldn't take further action against the firm on condition that it raises and maintains enough cash to satisfy the regulator. The authority had threatened to revoke the company's licence because of its financial difficulties.

The authorities had made repeated requests for the airline to provide details on its financial situation following changes to its board of directors last year and reports of business difficulties.

An economic slowdown didn't help, and then the impact of the protests left the 13-year-old airline ill-equipped to face an inevitable downturn that has hit peers across Asia, from Cathay to Qantas Airways and Cebu Air.

The aviation sector has been a prominent casualty during the unrest, particularly when protests spread to the airport in August and temporarily paralysed operations there.

Retail, tourism and many other industries have also taken a hit. Still, the thrust of the pro-democracy movement has generated strong support, as reflected in Nov 24 district elections, and there is no sign a resolution will be reached with the Beijing-backed government anytime soon.

As its crisis escalated, Hong Kong Airlines said it was unable to pay all of its staff and announced more route cancellations, including to Vancouver and Ho Chi Minh City. It also stopped providing in-flight entertainment from the start of December. BLOOMBERG