Hong Kong Airlines faces expansion freeze from Civil Aviation Department

HONG KONG Airlines (HKA), partly owned by the mainland's Hainan Airlines, faces a regulatory block to its expansion plans unless it meets the Hong Kong Civil Aviation Department's more stringent conditions for its Air Operator's Certificate (AOC) that lists the number of aircraft a carrier can fly.

This means HKA cannot add any aircraft of its own accord unless it wins prior approval from CAD, according to Reuters.

Said CAD: "With a very rapid expansion of aircraft fleet in recent years, CAD considers that it is time for HKA to catch up with its current fleet size by consolidating their existing operations," the aviation department said.

Jeffrey Lowe, general manager of Asian Sky Group, a Hong Kong-based aviation consultants group, commented: "It sounds like a way to say we think your safety standards are slipping, so until you can show us you can handle any additional aircraft, we would not approve it."

So far, Hong Kong Airlines operates a fleet of 20 aircraft and has placed orders for 10 Airbus A380 costing US$3.8 billion, which are scheduled to be delivered from 2015.

Those orders faced trouble for smooth delivery earlier as China and the European Union had a serious disagreement over the carbon emissions tax.

Hong Kong Airlines' cargo unit Hong Kong Express Airways (HKEA) will not be affected as it is operated under a separate AOC. The HKEA ordered six Boeing B777 cargo aircraft last year.

Recently, Hong Kong Airlines suffered from inadequate manpower, quarrels with its maintenance service provider Hong Kong Aircraft Engineering Co (HAECO), and serious flight delays.

Credit Suisse analyst Timothy Ross said Hong Kong Airlines is likely to be able to tackle the new conditions in the short term.

"However, in 2014 and 2015, HKA has major additions to its fleet (including Hong Kong's first A380s) and to have its fleet growth limited by an impaired AOC would have real implications for aircraft utilisation and the carrying cost of surplus assets," he added.

Hong Kong Airlines has also played a role in the fight against the European carbon tax on C02 emissions during entire flights rather than over EU airspace. Fighting back in March, China told Hong Kong Airlines to re-consider its order for 10 European-made Airbus A380s.

Hong Kong Airlines has also come under fire from an American and a Hong Kong environmental groups, questioning its probity in shipping live dolphins from Japan to theme park interests in Vietnam. Hong Kong Airlines said the shipment was handled in compliance with all known official standards and regulations.