Hainan Airlines: The Beginning of a Dynasty

The HNA Group has grown to become a behemoth of an organisation owning stakes in such diverse organisations as The Hilton Hotel chain, Deutsche Bank, Swissport and airport caterer Gategroup as well as a collection of airlines both within and outside of China. The start of it all however was Hainan Airlines, which grew from nothing rather mysteriously during the 1990s. Innovation played a major role but other factors were also key.

For other posts featuring Hainan Airlines see:

• Hainan Goes Intercontinental Pt1: Europe
  
• Hainan Goes Intercontinental Pt2: North American 787s
• Hai Manchester: 5 Star to China

Hainan Airlines Boeing 737-33A B-2579 Panda Models 1:400 Scale Model Airliner

Hainan Airlines nowadays has over 270 aircraft in its fleet and is the major owner of at least 5 other Chinese airlines (two of which are quite sizeable themselves). In fact Hainan is the 4th largest airline in China only smaller than the big 3 state controlled carriers. It certainly wasn’t like this in the beginning when it was one of a large crop of small airlines formed during the immediate post-CAAC era.

Hainan Airlines was really formed during the latter stages of the first period of liberalisation of the Chinese aviation market in 1993. By this time CAAC had been broken up for several years and the multiple regional affiliates had all taken on their own individual identities, whilst other local government backed airlines like Xiamen Airlines and Shanghai Airlines had been formed also.

Hainan island, a relative backwater at the time, was designated as a special economic zone by the Chinese government and the local government there was keen to start its own airline, much like tens of others who did the same thing in other regions. In fact technically they had already formed the airline in 1989, it just hadn’t gotten off the ground.

The difference appears to be that they contacted Chen Feng, a government official who worked with the World Bank, and Wang Jian, a figure at the CAAC. They created the new Hainan Province Airlines in reality and services began in May 1993 using a pair of 1993 build 737-33As leased from Ansett Worldwide Aviation Services. This in itself was nothing special, but what was unusual was that the new airline was formed as a joint stock company – the first in China.

This meant that unlike all the rest of the airlines, which were effectively owned either by central or regional government alone that for the first time private investors including the founders and top executives could own shares. Even more impressively for the first time foreign ownership was countenanced. In 1995 Mr Chen made a trip to New York and somehow convinced the billionaire George Soros to invest $25 million, giving the new airline a huge credibility boost.

By this time the initial fleet had grown to include 4 737-300s, a single 737-400 and a pair of turboprop Swearingen Metroliners. The extra jet aircraft were all leased from ILFC. The initial livery was certainly nothing to write home about being effectively all white with a simple tail logo of a jumping deer over a blue leaf like symbol. Five aircraft at the time made Hainan a decent size compared with other second tier carriers like Chang’An Airlines, Shanghai Airlines, Xiamen Airlines, Shandong Airlines and others but nothing special.

It appears also, in addition to access to foreign capital, that Hainan also had access to very generous backing from the Chinese state banks. In China where the state controls the financial sector the allotment of money is often based on politics rather than productivity and you have to assume that Chen and Wang had access to people with money to get the loans. These especially came from the China Development Bank Corp.

Several of the 737-300s acquired special schemes in the early 2000s

In 1996 flush with new cash the airline officially changed its name to Hainan Airlines. Executive jet operations were begun the year before (and would eventually grow into a significant business) whilst additional 737-300s and 400s were added also. A further seven Swearingen Metros were added in  1997 also bringing the fleet up to nine, although all were sold off in 2000 and replaced by Dornier 328Jets.

The Metros wore a much more exciting scheme than the 737s

Alongside the growth Hainan’s ownership became more and more murky as family members and friends of the co-owners set up affiliates to work with the airline itself. This practice has gotten more complicated ever since so that nowadays Wang Wei alone has ties to more than a dozen companies that do business with the HNA Group. Hainan Airlines was also able to benefit from the development of its homebase Haikou on Hainan Island yet again with little transparency but major profits.

This series 400 was still wearing essentially the late 90s scheme into 2012. Photo by Aeroprints from Wikipedia

By 1998 Hainan Airlines was able to finance the purchase of new 737 Next Generations making it the first airline in China to operate the 737-800. The first aircraft arrived in July 1998 and by the turn of the century the jet fleet stood at 5 737-300s, 7 737-400s, 5 737-800s and 2 Do328Jets. The 737-800s also introduced a new colour scheme with a dark blue tail and new wing logo on it. The fuselage remained mainly white but with a grey belly and small blue stripe at the nose. In later years the nose stripe was removed.

Expansion had continued with investment in airports in 1998 The 1990s paved the way for more growth in the early 2000s, which would see the establishment of the HNA Group and acquisition of a number of previously similarly sized small airlines (Shanxi Airlines, Chang’An Airlines and China Xinhua Airlines).

The growth has been exponential at HNA, which has spent wildly in recent years acquiring assets and now apparently has debts of over $100 billion. Hainan Airlines has grown itself into a major and respected international airline, one of only ten with a five star rating from Skytrax. How did it do all of this is hard to say but the period of the 1990s appears instrumental in setting the seed for its later success. It remains to be seen whether the HNA Group can successfully resolve its current problems but certainly Chen and Wang have made the most of the opportunities that they created or accessed.

Of course the other thing Hainan Airlines is well known for is its early special liveries and it is these we'll take a look at in the next part of this series.

References

2014, April. Buddhist tycoon Chen Feng built Hainan Airlines into global empire. South China Morning Post
Barboza, D. 2017 July. Behind a Chinese Powerhouse, a Web of Family Financial Ties. New York Times
Schuman, M. 2018 February. Why HNA Needs to Fail. Bloomberg.com