Hong Kong Airlines Given One Week to Save Its License

(Bloomberg) -- Hong Kong Airlines Ltd., the city's only other competitor to Cathay Pacific Airways Ltd., is fighting for survival just as the busy Christmas season approaches.

The Air Transport Licensing Authority told the carrier that its finances had deteriorated so much that it needs to raise more cash or risk losing its license. The regulator will make a decision by Saturday, it said.

For Hong Kong Airlines, the ultimatum escalates a crisis that already forced the company to delay salary payments and cut flights to places such as Vancouver. More broadly, the move is the latest indication of how months of anti-Beijing protests in Hong Kong have roiled the city's carriers — Cathay shares are trading near the lowest in a decade — as people avoid flying in and out of the Asian financial hub.

Visitor numbers in Hong Kong have plunged since the protests flared in June. Financial Secretary Paul Chan told lawmakers Monday that arrivals from mainland China tumbled a record 46% in October, a particularly important time because it coincides with the “Golden Week” holidays. Overall, visitors to Hong Kong fell 44%.

Though Hong Kong Airlines, backed by Chinese conglomerate HNA Group Co., doesn't disclose its financials because it isn't listed, the company has acknowledged it's facing difficulties. On Friday, it said that protests have “severely affected” its business. The airline was already under strain as economic growth took a hit from the U.S.-China trade war, and facing scrutiny from authorities, who've been requesting updates and improvements on its financial situation this year.

ATLA on Monday said it found the situation “extremely worrying” after meeting with Hong Kong Airlines' senior management and requesting them to explain the company's finances. The Civil Aviation Department and Transport and Housing Bureau have also both demanded the company worked to improve its finances.

“HKA's financial position has deteriorated rapidly,” ATLA said in its statement, which laid out two new licensing conditions: ensure a cash injection is made and that the company maintains levels of cash and equivalents determined by the regulator. It said if Hong Kong Airlines fails to improve its financial situation it could revoke or suspend the carrier's license.

Hong Kong Airlines, which has a feet of 39 Airbus SE planes, said it acknowledged the new requirements and that it regularly updates authorities on its operations and financial improvement plan. “Our operation is still running normally and we remain committed to flying our passengers to their destinations safely,” it said in an emailed statement.

On the flight changes, the carrier said Friday it would focus on priority routes and that alternative travel arrangements would be offered to passengers holding tickets for discontinued routes to Vancouver, Ho Chi Minh and Tianjin.

“Hong Kong Airlines will continue to monitor the situation closely and adjust its business plan accordingly to ensure that it remains commercially viable and sustain its long-term growth,” it said.

Cathay hasn't been immune to the unrest in Hong Kong. The carrier has issued profit warnings and plans to reduce capacity next year.

To contact the reporter on this story: Will Davies in Hong Kong at wdavies13@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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