TRAVEL: HNA Beefs Up Travel With Aircraft Leasing Bid, Catering Buy

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Bottom line: HNA’s bid for a major aircraft lessor and purchase of a top airline catering firm extend a buying spree that could top $10 billion and position it as a major global player for travel-related products and services.

HNA chases aircraft lessor, buys Swiss caterer

The recently acquisitive HNA Group is continuing its global buying spree, with reports that it’s a leading contender to buy one of the world’s leading aircraft lessors, and that it’s agreed to purchase a top global airline caterer. The first deal has HNA bidding for the aircraft leasing business of CIT Group (NYSE: CIT), which is valued at $3-$4 billion; while the second has HNA agreeing to buy  Gategroup for $1.5 billion. These latest deals come just months after HNA has made major investments and purchases in the travel sector in Australia, South America and Europe.

This sudden buying binge would make HNA easily one of the biggest spenders in global M&A by Chinese firms over the last few years. Multibillion-dollar deals are becoming increasingly common in that trend, though HNA’s total bill for all of its buying would be rapidly approaching the $10 billion mark if both of these latest deals are included.

Let’s begin with the CIT deal, which is part of a growing flurry of activity by Chinese companies looking to cash in on the nation’s booming travel industry. HNA was already active in that trend last year, when one of its units beat out several domestic rivals to purchase Irish aircraft leasing company Avolon for $2.5 billion.

Now the latest reports say that HNA, parent of Hainan Airlines (Shanghai: 600221), is one of several bidders vying for CIT’s aircraft leasing unit, one of the world’s top 10 players with a fleet of 331 aircraft. (English article) Other bidders include Hong Kong tycoon Li Ka-shing and Chinese financial services giant Ping An (Shanghai: 601318), as well as Japan’s Century Tokyo Leasing (Tokyo: 8439).

The reports say that HNA is considered a leading contender, perhaps because of its earlier Avolon deal. The list of bidders have already passed a first round, and are now being asked to submit bids due in August for a second round. A successful bid for the CIT business would mean HNA has spent about $6 billion alone on aircraft leasing assets over the past 2 years, and would make it one of the world’s largest players.

Premium for Money-Losing Caterer

Next there’s the airline catering deal, which has HNA buying Swiss company Gategroup for 1.4 billion francs ($1.5 billion). (English article; Chinese article) HNA said the deal could represent a premium of up to 20 percent for Gategroup shareholders, based on the company’s latest closing price.

Reports on the deal are pointing out that the airline catering industry has struggled in recent years, as many airlines stop offering food to passengers as a cost-saving move. As a frequent flyer, I often skip such meals anyhow and sometimes bring my own food that’s much better. So it’s not difficult to understand why company’s like Gategroup are struggling. Gategroup actually lost around $70 million last year, and announced job cuts in a bid to revive its fortunes.

This pair of deals continue HNA’s buying spree that saw it not only purchase Avolon, but also make several other major travel-related acquisitions over the last year. Those include its purchase of the European owner of the Radisson hotel chain (previous post); its purchase of a stake in Australian carrier Virgin Australia (previous post); and another recent bid for 2 South American airlines. (previous post)

This particular buying frenzy looks quite well-conceived, as it’s centered on assets that could find future synergies due to their focus on travel-related products and services. One big danger could be overpayment for some of those assets, especially the aircraft leasing businesses that are attracting competitive bidding. Buying money-losing assets like Gategroup is always risky too. But on the whole the buying spree looks relatively well focused, and vault HNA to the position of China’s first major global provider of travel products and services.

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