HNA Spreads Wings to France 海航收购法国蓝鹰航空48%股权

By newsdoug on October 24, 2012

HNA in new French tie-up Let’s take a break today from all the background noise in cyberspace and trade wars and look instead at an interesting new deal from HNA Group, whose latest equity tie-up in France reflects its ongoing ambition to become one of China’s leading global investors. Despite its ties to the Hainan provincial government, HNA, whose partners include billionaire investor George Soros, has emerged in the last few years as one of China’s most entrepreneurial global investors with a string of interesting deals in strategic areas. Accordingly, this could well become a company to watch as it tries to mimic big global private equity names like Carlyle and TPG, while also building up its own businesses.

The latest deal in its global acquisition spree is seeing HNA purchase a minority 48 percent stake in a small French airline called Aigle Azur, marking the first investment in a European airline by a Chinese carrier. (company announcement) Financial terms of the deal weren’t disclosed, but media reports put the amount at a relatively modest $40 million. HNA will remain a minority partner in the French airline, whose largest shareholder will remain French firm Go Fast Group.

Aigle Azur is a relatively established niche player, set up in 1946 and now flying domestic routes in France as well as to several nearby European countries. So perhaps the most interesting element of this new tie-up will see the French company significantly spread its wings to launch service from Paris to Beijing starting next summer.

This move looks like a very smart one for HNA, which also owns Hainan Airlines (Shanghai: 600221), China’s fourth-largest airline and the only one without ties to the country’s former aviation monopoly. Hainan Airlines already operates international flights to a number of international destinations, and this new tie-up will allow it to add Paris, one of Europe’s most popular travel destinations, to that line-up.

I’m a frequent flyer in China, and I can say without hesitation that Hainan Airlines, whose backers include Soros, is easily the best of China’s domestic airlines. That fact is all the more remarkable in light of the numerous disadvantages the company faces compared with bigger rivals like Air China (HKEx: 753; Shanghai: 601111) and China Southern (HKEx: 1055; Shanghai: 601766), which enjoy generous state support due to their government connections.

This new French equity stake is just the latest in a growing string of investments by HNA, which has developed interests in a wide range of areas. Entertainment has been one focus area for the company, which was reportedly bidding last year for a stake in struggling US studio Metro-Goldwyn-Mayer and has also invested in a company building a major new theater chain in China. (previous post) The cash-rich HNA also made headlines last year when it teamed with a private equity firm to buy GE’s (NYSE: GE) SeaCo container leasing unit for $1 billion. (previous post)

China has a number of other privately run international investors, including names like Fosun International (HKEx: 656) and CITIC Group, which have both been active on the global stage over the last year as well. But from my perspective, HNA seems to be one of the most promising names to watch, following a strategy of buying undervalued but relatively well run assets that can ultimately provide synergies for its existing assets and also earn strong returns over the longer term.

Bottom line: HNA’s purchase of a stake in a French airline is part of a well-conceived broader strategy of targeting assets that provide good synergies and potential for strong longer-term returns.

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