Finance houses up and down Wall Street have been alight with talk that American International Group (AIG) is looking to sell a 25% stake in ILFC. This news is nothing new but various sources are now stating an overall price range of between $1.5-2bn for the 25% share offering. It is now clear that if the market does not deteriorate further during the summer months then an IPO will be launched this autumn.
Meanwhile what is HNA up to?
HNA Group, the parent company of China’s fourth-largest airline group, Hainan Airlines, is seeking to become the first Chinese airline to invest in the European aviation sector by bidding for the Hungarian flag carrier and a German airport operator.
Wu Feng of HNA group said his company is targeting Malev Hungarian Airlines and Hochtief Airport Ltd Co, an airport management company that is based in Essen, Germany which owns stakes in six international airports: Athens, Dusseldorf, Hamburg, Tirana, Sydney and Budapest. HNA is competing with four other companies for Hochtief Airport, and bids will likely range from $1.10 billion to $1.30 billion.
The reality of this story is this: The Chinese are putting the information out to press agencies across the globe to see what the response will be in Hungary, Germany and at the European Union HQ. As yet no specific proposals have been made and there is no formal consensus within HNA as to the price or method of any investment in Malev or Hochtief. HNA has received indicative support from the Hungarian government that is stage one, stage two is the support of the press and voters in those countries concerned. In any event Malev is a stepping stone to get into the EU zone before moving for something larger. All eyes at HNA are currently fixed upon GE SeaCo, the container leasing business. Word is that HNA Group management has its hearts set on ensuring it gets the deal and is willing to go to $3bn to secure it, for this reason the aviation deals will be moved along slowly for now.
HNA signed a cooperation agreement with the Hungarian Capital Association during Premier Wen Jiabao’s visit to the country last month. And it is likely that this visit rekindled the HNA Group interest in Malev from 2004 when they showed interest in restructuring the airline, before withdrawing on concerns about its debt. HNA have stated that at present the impetus for the Hungarian investment is coming entirely from the Haikou, Hainan-based company.
Malev has 22 aircraft serving 50 destinations in 36 countries, according to its website.
Haikou-based HNA had revenues of €7bn ($11.2bn) last year and owns more than €40bn in assets. As well as Hainan, the group owns Minsheng, a listed department store group, an airport owner and operator, a logistics company and a hotel owner and manager.
European aerospace is a good investment at the right mark down. The market is in a worse state than all other regions at this time with the fleet numbers far below their 2007 highs and many routes still showing signs of overcapacity. Ticket prices in real terms have not been increased, in fact if taxation and fuel rises are factored-in then European air fares have in fact fallen in real terms and that is before we even start to think about inflation across the cost base of airlines/airports in general. There is a real chance that European business travel could start to slow in 2012 and this would lead to real problems as tourist traffic is falling sharply and is expected to fall further in 2012. So at the right markdown an investment now for the medium to long term is a very good move so long as said investment is of a sound footing. Look to OEM suppliers who have still not shown share price gains in line with increased profit expectations as the very best investment in the European aerospace sector at this time.
Aerospace Investment Journal’s August/September issue will carry OEM supplier investment information along with a full global report on the condition of the civil aviation sector.