The future of ailing Hong Kong Airlines hung by a thread as it prepared for crunch talks on Friday with the airline licensing body, with its very existence under threat.
Ahead of the meeting, the struggling carrier announced it was cutting its final long-haul route, to Vancouver, and also axed flights to Ho Chi Minh City and Tianjin.
On Thursday, it was revealed the airline did not have enough money to pay all its 3,500 staff on time in November, and the Air Transport Licensing Authority said the city’s third biggest airline had been in deep financial trouble “for a long period of time”.
The airline’s accounts are expected to be under the microscope again in the latest meeting between the two sides, almost a month after the government publicly criticised the state of the airline.
At the meeting, the authority is expected to “evaluate the information and explanation to be provided by HKA, and will consider whether there is a need to take appropriate action(s)”, according to a statement it issued on Thursday night, in which it also cited its power to revoke the airline’s licence.
The licensing body also said it was “extremely concerned about the inability” of HKA to make salary payments on time to a large portion of its employees.
A spokeswoman for the airline said the delay in salary payments was a one-off, and did not affect the day-to-day business of operating flights.
“Our staff remain professional and are committed to delivering a safe and smooth service to all our customers,” the company said.
The cutbacks announced on Friday are expected to come into effect by February, and follow on from changes to 11 routes it made earlier this month, reducing services to popular destinations such as Tokyo, Osaka, and Seoul.
“Hong Kong Airlines has been reviewing its network strategy and will continue to focus on operating priority routes under the challenging business environment caused by the ongoing social unrest in Hong Kong,” the airline said in a statement.
“Hong Kong Airlines will continue to monitor the situation closely and adjust its business plan accordingly to ensure that it remains commercially viable and sustains its long-term growth.”
The Post has been told the government has taken contingency measures for the busy Christmas travel period should the airline fold, with other carriers being asked to absorb stranded passengers in that event.
A similar rescue plan has existed for the past year as doubts about the company’s ability to continue trading have grown.
According to a person familiar with the situation, the government has four specific options open to it, including revoking the airline’s licence entirely, or replacing its licence with a temporary one to allow a restructuring of the company’s finances.
Alternatively, the authorities could restrict the way the carrier does business by adding or changing conditions to its licence, or requesting more financial information on a regular basis.
The government has already forced HKA to trim flights, affecting 11 destinations and its entire long-haul operation appears at risk of being axed.
“If it gets really bad they [ATLA] may turn the licence to a temporary licence and force HKA to restructure,” a well-placed source said. “That will be the second last resort. Otherwise the authorities will find remedial options to make sure HKA does not sell any more tickets and then revoke its licence.”
On Thursday, the carrier delayed paying staff until December 6, the first time the airline had delayed wages on a large scale in its most recent troubles.
“Delay in paying salary is the last indicator,” said the source, referring to the unhealthy state of finances. There was “no bigger indicator than this”.
The fresh warning signs renew fears Hong Kong Airlines could become the first airline to fail in the city since the demise of Oasis Hong Kong in 2008.
Through a complicated shareholding structure, mainland Chinese conglomerate HNA wields the most control over the airline, though it has not been financially supporting the business as it tackles its own money woes.
The heavily indebted airline-to-financial services group continues to make ongoing efforts to find a buyer for the airline, and in April appealed to shareholders to inject HK$2 billion just to keep its airline permit and the business afloat.
Since problems came to light, a string of directors and top managers have left, while the number of planes, flights, routes and the workforce has shrunk to ease the losses.
The 13-year-old airline flies to 32 destinations mostly in North Asia and Southeast Asia, down from 38, and a quarter of its 39 planes are grounded.
Additional reporting by Christy Leung
More from South China Morning Post:
- Hong Kong Airlines fails to pay November salaries on time to almost half of its employees, cites protests and weak travel demand as reasons for poor business
- Hong Kong Airlines fighting to survive as licensing authority calls crisis talks over carrier’s financial woes
- Planes stay on the ground and protests bite, as Hong Kong Airlines struggles to beat financial woes
- Hong Kong Airlines earns warning from Air Transport Licensing Authority over financial tailspin