Hong Kong Airlines bosses have been given five days to save the company, putting 3,500 jobs at risk just weeks before Christmas.
The government said on Monday the airline needed to find new cash or last-minute investors; otherwise it will face having its operating licence suspended or even revoked.
In the most serious action taken by the government since the carrier’s financial woes became public, the Air Transport Licensing Authority (ATLA) concluded that the finances of Hong Kong’s third-largest airline, backed by the financially troubled HNA Group, had “deteriorated rapidly”, preventing it from meeting the minimum requirements under its permit.
Pressure will be placed on the airline’s controlling shareholder, HNA, to finally invest money, something which sources said it had not done for a considerable period of time, for lack of cash.
Failure to raise new capital would probably lead to the airline’s closure, which would make it the second local carrier to go out of business, after the 2008 collapse of Oasis Hong Kong.
“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,” the authority said in a statement.
The beleaguered airline acknowledged the government’s ultimatum to raise cash by Saturday.
“Hong Kong Airlines is actively communicating with our shareholders and other stakeholders to meet the new requirements from ATLA as requested,” a spokeswoman said. “Our operation is still running normally and we remain committed to flying our passengers to their destinations safely.”
The airline was given two new licence conditions on Monday that it must meet by Saturday. It must ensure fresh cash is injected into the company at a level set by the licensing body, and continue to raise and maintain its balances as set out by the authority.
Hong Kong Airlines fighting to survive as licensing authority calls crisis talks over carrier’s financial woes
After more than 12 months of warning signs for the crisis-hit carrier, its financial fragility has been exposed by months of civil unrest in Hong Kong.
“If HKA fails to improve its financial situation as required by ATLA by the deadline, ATLA will take further action … which provides for revocation or suspension of licence,” the statement read. “ATLA will announce its decision by December 7, 2019.”
Secretary for Transport and Housing Frank Chan Fan said his bureau had been closely following the airline’s financial situation and had held 12 meetings with the company. The Civil Aviation Department also conducted inspections about every two days to ensure that aviation safety was not affected.
The authority’s demands followed a meeting last Friday of government officials from the statutory body, the Transport and Housing Bureau and the Civil Aviation Department, with senior management from the airline.
In a statement, the bureau said it had “expressed grave dissatisfaction and deep concern that HKA’s financial situation had not significantly improved”.
It added that the onus was on the airline to prevent the situation from deteriorating, and reminded the carrier to continue to provide services to its passengers in accordance with the terms and conditions of air tickets, before any further decision from the licensing authority was made.
Transport officials acknowledged they had forced the airline to cut back operations “in the hope” the situation could brought under control.
The parlous state of the airline’s finances was thrown into sharp relief last week when it was revealed it had not been able to pay all its staff in November, and had cut its in-flight entertainment because it could not afford to pay the vendor.
Hong Kong Airlines has faced increased scrutiny since December 2018, and has faced 180 scheduled and unscheduled inspections, and the aviation department has said it doubts its ability to fulfil its licence obligations.
“The CAD will continue to closely monitor HKA’s flight operations and aviation safety, with a view to ensuring that HKA’s operations will continue to comply fully with the requirements of relevant aviation laws and regulations,” a department spokeswoman said.
Luya You, transport analyst at Bocom International, a brokerage company, said it seemed extremely unlikely that the airline could save itself in the next few days.
“It’s no secret that HKA has been struggling with rising costs and dried-up financing in the past few years,” she said. “We can assume HKA has already pursued all viable options long before now.”
More from South China Morning Post: