Hainan carrier weighs European presence

Wang Wen ( China Daily )

Updated: 2011-07-19

BEIJING - HNA Group, China's fourth-largest airline group, is seeking to become the first Chinese airline to invest in the European aviation sector by bidding for a Hungarian carrier and a German-based airport operator.

Wu Feng, manager of the brand center 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.

At present, he said, the impetus for the Hungarian investment is coming entirely from the Haikou, Hainan-based company.

Wu said there had been no specific proposals yet involving the price or method of investment in Malev.

Wu said the Chinese and Hungarian governments have indicated support for the deal, but HNA still needs to hold further talks with Malev.

HNA is also bidding for Hochtief Airport, which owns stakes in six international airports in Athens, Dusseldof, Hamburg, Tirana, Sydney and Budapest, Chen Feng, board chairman of HNA group, said on Friday.

HNA is competing with four other companies for Hochtief Airport, and bids will likely range from $1.14 billion to $1.28 billion, Reuters reported on July 14.

However, analysts said that the European airline industry is not a profitable business and now is not a good time to enter the sector.

Li Lei, an analyst with CITIC China Securities Co Ltd, said the European market is saturated and competition among local airlines is stiff, both of which could pose a risk to HNA's business in Europe if the investments go through.

Hungary does not have a large aviation market and it will take a long time for HNA to profit from its investment, Li said.

The upside of the proposed deal, Li said, is that the valuation is not high as the industry is still struggling.

He said Chinese airlines should not abandon the European market, and it is not a bad idea to start with an East European partner, rather than going directly into the more developed and competitive Western European market.

The South China Morning Post reported on Friday that HNA signed a cooperation agreement with the Hungarian Capital Association during Premier Wen Jiabao's visit to the country last month.

This is not the first time that HNA has approached the Hungarian carrier, China Business News reported.

In 2004, HNA Group showed interest in restructuring Malev, but the Chinese side subsequently withdrew on concerns about Malev's debt.

Malev is a state-owned carrier with a 65-year history. It has 22 aircraft serving 50 destinations in 36 countries, according to its website.

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