HNA Group has agreed to buy a 13 per cent stake in Virgin Australia Holdings and is in talks to acquire 49.99 per cent of Air France’s Servair, as the Chinese conglomerate continues its aggressive expansion overseas.
Virgin, Australia’s second-biggest airline, said on Tuesday that the Chinese group would make a A$159m (US$115m) equity investment as part of a strategic commercial alliance. It said HNA intended to increase its holding over time to 19.99 per cent, as part of a broader alliance that may lead to direct flights between China and Australia both by Virgin and HNA-owned carriers.
“HNA is committed to expanding in the airline industry through strategic investments in companies with strong market positions and excellent management teams,” said Xin Di, chief executive of HNA Aviation Group, according to a statement issued by Virgin.
HNA Group, which owns two airlines and holds controlling stakes in 10 listed companies, has struck on average nearly one deal a month over the past 12 months as part of a shopping spree. It was also a bidder for London City airport earlier this year but lost out to Ontario Teachers’ Pension Plan.
The property-to-airlines conglomerate also is in talks to buy 49.99 per cent of Servair in a transaction that would give the company, which provides cleaning and catering to the aviation industry, an enterprise value of €475m.
The move, first reported by the Financial Times, aims to create what is expected to be the world’s biggest airline catering company by revenues, combining Servair with Gategroup, for which HNA Group made a SFr1.4bn ($1.5bn) takeover offer last month.
Doug Ferguson, KPMG’s head of Asia business, said it was no surprise HNA was investing in a carrier such as Virgin and noted that this was part of wider trend of outbound Chinese investment.
“We have seen a big increase in Chinese investment into overseas lifestyle, tourism and services business over the past few years. Airline passenger numbers and tourism numbers have jumped between Australia and China,” he said.
The deal provides Virgin with much-needed investment, and comes as top shareholder Air New Zealand looks to offload its 26 per cent stake. Shares in Virgin were up 5.4 per cent on Tuesday afternoon in Sydney but have fallen 35 per cent this year.
Over the past year HNA has paid out at least $14.2bn, making it one of the top drivers of cross-border Chinese M&A this year. Several of the price tags on its buyouts have not been disclosed.
Last month HNA said it had agreed to buy Carlson Hotels, owner of the Radisson hotel chain, for an undisclosed amount. That was HNA’s second cross-border deal in April and, including the $6bn buyout of Ingram Micro in January, its fourth this year, according to Dealogic.
It is understood that a deal for Servair, which is dependent on HNA’s successful acquisition of Gategroup, would see the Chinese company take operational control of Servair.
In a second stage, Air France would sell a further 30 per cent of the company to HNA two years after selling the initial 49.99 per cent stake. Air France expects to sign a deal by the end of the summer, and said in a statement on Monday that talks had sprung from “wishes to provide Servair with the resources to ensure its growth and maintain the highest standards”.
Servair, which employs 10,000 people and had sales of €792m last year, has remained on the sidelines of consolidation in airline catering in recent years, missing out on opportunities to grow in an industry that increasingly relies on scale to compete.