Bonds Mar 13

West Air bonds go into ‘death spiral’

Budget airline, owned by HNA Group, has suffered a fall in passengers and its bond price

China West Air the latest bond default?
The price of West Air bonds has dropped by over 20% this week. Photo: Flickr

 (ATF) – West Air, a leading Chinese low-cost airline under the HNA Group, suffered a dramatic plunge in its bond price, with a drop of more than 20%.

The price of the 17 West Air 01 bonds began to drop at 11:20am on March 9 and had declined 3.07% by Tuesday. But things got worse the next day on Wednesday March 10, with the bonds falling by 7.17% at the end of trading.

The decline became a death spiral as West Air's bonds fell from 97.5 yuan to 70 yuan.

In an emergency announcement yesterday, West Air applied for a suspension of trading in its bonds, Haina Finance reported.

The total amount of the five-year bonds issued by 17 West Air 01 was 780 million yuan (US$113m). At the end of the third year, the coupon or investor resale can be increased. The coupon was 6.2%, with interest paid once a year, and the principal repaid once it's due. 

The total amount of corporate bonds that can be issued by West Air is 950 million yuan. The first issue in 2017 was for 780 million yuan.

Established in 2007, West Air is a low-cost airline owned by HNA. It currently has 31 A320 aircraft and four A319 aircraft, employs more than 2,600 people, and has total assets of 12.5 billion yuan.

Passenger throughput in the 49 airports it manages decreased 81%

It has two bases, including one in Zhengzhou,  Chongqing. Its planes fly on 114 domestic and international routes, including Haikou, Guangzhou, Shanghai, Shenzhen, Singapore and Osaka – travelling to 51 cities in total.

From 2016 to the first half of 2019, West Air's net profit was 438 million yuan in 2016, 487 million yuan in 2017, 175 million yuan in 2018 and 125 million yuan last year. Its profits began to dip severely two years ago.

According to data released last month by the Southwest Civil Aviation Administration of China, the passenger throughput in the 49 airports it manages decreased 81% over the previous year. Among them, capacity rates at Chengdu Shuangliu, Chongqing Jiangbei, Kunming Changshui and Guiyang Longdongbao Airport's February capacity rates fell by 76%, 81.7%, 83.8% and 81.7%, respectively.

Chengdu Shuangliu Airport, for example, saw 4.18 billion passengers in February 2019, but last month the figure had dropped to just 1.1 billion. Airports in Chongqing also saw a significant fall year-on-year – Jiangbei Airport saw 81.75% fewer passengers, Wanzhou Airport's numbers decreased 75.58% and Qianjiang Airport's total slid 78.76%.

Restructuring agreement

On December 2, HNA Group and Yufu Group signed a strategic restructuring agreement. Yufu became with largest shareholder of West Air with stock held by Yufu or its designated enterprises at not less than 70%.

HNA Group indirectly holds 36.31% equity of West Air through West Holdings. It also indirectly holds 19.43% equity in the airline through Jianying Investment, and indirectly holds 15.29% equity through Tianjin Chuangxin Investment Partnership. That gives HNA a total holding of 71.43% equity in West Air.

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