Wuxi State-owned Firm Moves To Buy Yunnan-based Carrier, Throwing Hong Kong Airlines Discussions In Doubt

Wuxi Communications Industry Group signs framework agreement to buy unspecific stake in Yunnan province's Ruili Airlines Deal could reduce the incentive for Wuxi to buy the troubled Hong Kong Airlines
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Wuxi State-owned Firm Moves To Buy Yunnan-based Carrier, Throwing Hong Kong Airlines Discussions In Doubt

A company owned by Wuxi government plans to buy a stake in Ruili Airlines, giving the city and the eastern Chinese province of Jiangsu their first home-based carrier. The move could however spell the end of discussions on the possible sale of Hong Kong Airlines to a consortium that includes the state-owned enterprise.

Wuxi Communications Industry Group signed a framework agreement with Yunnan Jingcheng Group on Tuesday to buy shares in Ruili Airlines, marking the first step in the group's acquisition of the privately held Yunnan-based carrier, the company said on its website.

Wuxi Communcations' announcement did not specify the deal amount or the stake it plans to buy. Yunnan Jingcheng owns a 70 per cent stake in Ruili Airlines, according to data from Wind Information.

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Wuxi's talks with indebted aviation-to-finance conglomerate HNA Group to buy a stake in Hong Kong Airlines, the third largest carrier in the city, failed to make progress after on-and-off talks that started more than a year ago. As debt payment pressure mounts, Hong Kong Airlines' hope to find a white knight to keep it afloat are increasing fading as the coronavirus pandemic prolongs the troubled carrier's recovery.

Hong Kong Airlines owner HNA Group has been looking to sell the carrier for over a year now. Photo: Winson Wong

Hong Kong Airlines owner HNA Group has been looking to sell the carrier for over a year now. Photo: Winson Wong

Chinese authorities would have preferred Wuxi to buy Hong Kong Airlines, but Wuxi balked at the price, with more potential buyers conducting due diligence this year, sources said earlier.

Wuxi, the Chinese owner of the Dornier Seawings amphibious aircraft maker, has been searching for a carrier as the local government aims to build the city into an important transport hub in China. Analysts said Ruili Airlines' ability to operate from Wuxi city fits the needs of the local government quite well.

"Wuxi government's main goal in such an investment is that it wants an airline based in Wuxi, and help the city government to enhance its ability to connect to other parts of China and other countries," said Qi Qi, an associate professor at Guangzhou Civil Aviation College. He added that such a move with Hong Kong Airlines would not have been possible.

Yu Zhanfu, a partner at the consultancy Roland Berger in Shanghai, said that the pandemic has severely affected the viability of privately owned carriers. A relatively swift deal between the state-owned enterprise and Ruili has been made possible as larger state-owned carriers are still trying to weather the health crisis, he added.

A major shareholder of Ruili Airlines has been mired in financial trouble, according to mainland media reports. In June, a court in Kunming banned Dong Shijie, who owns 30 per cent of Yunnan Jingcheng, from travelling and indulging in unnecessary expensive purchases and enrolling his children in private schools.

Some 30.7 million passengers flew domestically in June, a 42.4 per cent decline year on year, but an increase of 10.2 per cent from May, data from the Civil Aviation Administration of China showed. International passenger numbers in June however stood at 2.3 per cent of last year's level.

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