China Southern Airlines is planning to raise CNY16 billion ($2.2 billion) by issuing convertible bonds, mainly for the acquisition of aircraft.
The lion’s share of the proceeds will be used for the purchase of eleven unspecified aircraft. The total acquisition will cost CNY21.7 billion, CNY10.6 billion of which will be funded by the debt issuance. The state-owned carrier’s purchase plan has already received government approval.
China Southern said the aircraft it is buying are existing types. They will replace older aircraft to optimize the fleet by reducing fuel consumption and maintenance costs. China Southern estimates the new aircraft will increase its operating revenue by CNY1.9 billion annually.
Meanwhile CNY600 million has been allocated for the purchase of five spare engines: two CFM LEAP-1A33s; one LEAP-1A26; and two Rolls-Royce Trent XWBs. The LEAP engines are used on Airbus A320neo family aircraft. A further CNY4.8 billion will be used to supplement working capital.
Based on Aviation Week Intelligence Network Fleet Data, Asia’s largest airline in terms of fleet and passenger carriage has 64 A320neo family aircraft and six A350s in service. Another 37 A320neo family jets and 14 A350s are on order. In addition to the 51 Airbus aircraft, China Southern has 73 Boeing aircraft on order and 39 from COMAC.
China Southern said the new funds will ensure the airline is positioned for the industry recovery as it grapples with cashflow issues from the COVID-19 outbreak. The carrier expects growth in the Greater Bay Area—which consists of Guangzhou, Hong Kong and Macau—as well as at its second hub, Beijing Daxing Airport (PKX), where China Southern and its subsidiaries are the largest tenant with a 43% market share.
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