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2018 was a terrible year for some airlines. The year saw many airlines shutter, and others like Norwegian and Wow battle to stay in the air. Rising capacity and fuel prices will surely keep the pressure on airlines in 2019. Here’s where those struggling most stand.
The drama surrounding low-cost carrier Wow in 2018 was closely followed here at TPG. The airline made dramatic cuts to its fleet and routes in an effort to stay in business. (Wow saw its fleet cut from 20 planes down to only 11 at the end of 2018.) In what could be a bit of a silver lining in the cloudy skies over at Wow, Indigo Partners has made a general commitment to invest in the struggling carrier. The investment group, which also owns Frontier Airlines, is widely credited with saving Spirit Airlines and turning it into the most profitable carrier in the ultra-budget sector. If Indigo’s history is an indicator, Wow might just be able to survive.
The industry was on high alert in late December for what the market saw as the inevitable collapse of Norwegian Air. Many were expecting the cash-strapped airline to breach a covenant on one of its debt obligations and be forced to shutter before the New Year. Norwegian, however, had been saying that would not be the case and announced it would continue to divest in aircraft and make adjustments to routes. Norwegian has dubbed its new cost savings program #Focus2019. A press release to the Oslo stock exchange outlined the new program and reiterated that much of the trouble with Norwegian’s long-haul operations stem from issues with Rolls Royce engines on its Boeing 787 Dreamliners. For Norwegian, it’s likely we will see a joint venture step in to assume some or all of its outstanding aircraft orders at some point in 2019. This would help relieve the cash pressure on the airline to cover new deliveries and payments on planes. For now, Norwegian looks to be on a track that will see the airline improve its financial position during 2019.
India’s second-largest carrier rang in the New Year by defaulting on loan repayments despite talks with its banks as well as with Etihad Airways, which currently owns 24% of Jet Airways. Etihad agreed in principal to increase its holdings, but only if Jet’s founder Naresh Goyal would give up control of the airline, according to Reuters. The State Bank of India has agreed, in principle, to extend another loan of $215 million to cover current operating costs while the airline is restructured to address its financial crisis. Jet has delayed delivery of aircraft, cut routes, reduced staff and delayed salary payments to executives and pilots as it attempts to navigate out of the current crisis. For now, it’s unclear if Jet Airways will remain in operation past the first quarter of 2019.
Hong Kong Airlines
In what could be one of the oddest indications that an airline might be in trouble, a Hong Kong insurance company announced it would stop offering one of its travel insurance products related to Hong Kong Airlines, the “Special Allowance – Winding-up of Airline”. Simply put, the insurance company offers coverage if you book a ticket with an airline that then goes out of business, which it was no longer going to provide on policies that involved travel with Hong Kong Airlines. The airline was swift in its response, threatening legal action against anyone starting “untrue or groundless” rumors about the health of the airline. (You might recall Hong Kong Airlines for the $600 mistake fare for business class across the Pacific, which it chose to honor.)
The issue with Hong Kong Airlines really lies with its parent company, HNA Group. HNA racked up more than $80 billon in debt on a worldwide spending spree buying everything from a massive stake in Hilton Worldwide to US skyscrapers. Those investments haven’t been as profitable as HNA would have hoped and it is currently selling off assets at a rapid pace, including its $6 billion stake in Hilton Worldwide.
If the airline is in trouble, liquidating its assets could be a possibility for HNA if it can’t find an outright buyer. The Chinese Air Transport Licensing Authority asked the airline to disclose its current financial health. The company has so far refused to comply, stating that because it is privately held , there is no requirement to do so.
While the airline’s books might not be open to the public, actions by its directors are a bit easier to follow. In what normally marks a sign of a sinking ship in the corporate world, top leadership including co-chairs of the board and CFO have resigned from the airline in the last few months. In another odd turn of events, HNA is now suing a company called “Hong Kong Airlines Consultation”, which the airline has said is in no way affiliated but seems to be owned by one of those former directors, Zhong Guosong. The lawsuit is seeking to recover the repayment of a debt issued in 2010. HNA is suing the company for just under $110 million.
With some reports claiming that the airline has a $185 million bond payment due on Jan. 20, Hong Kong Airlines is going to be watched closely as that date quickly approaches. The airline has stated numerous times that everything is business as usual.
With increased competition in the aviation industry, 2019 is going to be another hard year for carriers. It would seem the cycle of expansion followed by belt tightening will continue. While these four carriers are facing their own headwinds moving forward, increases in capacity and rising fuel prices will play a huge role in how all airlines handle challenges in 2019.
Featured Photo by Nicolas Economou/NurPhoto via Getty Images
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