Research On Causes And Economic Consequences Of Hainan Airlines’ Bond Defaults

With the continuous improvement of the domestic bond market,issuing bonds has become the main financing method for many enterprises.Since 2018,China’s financial market supervision has been strengthened and the financial deleveraging policy has been fully implemented,the domestic financing environment has changed from loose to tight,and the difficulty of financing for enterprises has increased,while the number of bond defaults in China has also increased.Hainan Airlines,one of the top four domestic airlines,had several bond defaults in 2020 and 2021,and prior to the defaults its main rating and bond rating were both AAA,causing investors to question the "high credit" rating of the bonds.Given the fact that other airlines were also affected by the New Crown epidemic but did not default on their bonds,it is of some value to choose Hainan Airlines’ bond default case for this study.This paper adopts the literature research method,case study method,comparative analysis method and mathematical model analysis method to analyse the causes of Hainan Airlines’ default from four levels after introducing its basic situation and the relevant defaulted bonds.Firstly,starting from the macro level of the industry,the overall economic environment and the development of the aviation industry in China in recent years were analysed through the official website of the National Bureau of Statistics and public documents of the Civil Aviation Administration.Then the Z-score model and KMV model were used to analyse its credit risk before default.The study found that the rating reports issued by the rating agencies were seriously inflated and lagged behind,which were easily misleading to the debt issuing enterprises.It also reveals that the rating standards of China’s rating agencies are too lax.Information on the corporate governance decision-making level was then collected,revealing significant problems in its diversified operations,non-operating capital appropriation by related parties and financing strategy.Finally,attention was paid to Hainan Airlines’ financial position in the relevant years prior to its bond default.The study found that the risk of default was well documented in the case of Hainan Airlines’ bond defaults: a "frenzy" of overseas mergers and acquisitions that led to large-scale debt raising,a mismatch of debt maturities that led to a sharp increase in short-term debt servicing pressure,non-operating funds tied to related parties and undisclosed guarantees that reflected serious internal control problems,and ultimately a break in the capital chain.In the face of a concentration of maturing debts that it was unable to repay,it fell into financial distress and went into bankruptcy.In terms of economic consequences,the paper first uses the event study method to analyse the abnormal fluctuations in Hainan Airlines’ share price after the bond default.As a result of the bond default,the credit rating of Hainan Airlines was adjusted to C by a number of rating agencies,resulting in zero incremental bond issuance in 2020 and 2021,a significant drop in funding cash inflows and a severe impact on its ability to raise capital.Finally,based on the changes in Hainan Airlines’ profitability indicators,the analysis shows that its profitability is also declining.The innovation of this paper lies in the innovation of the research content and research perspective,the introduction of economic consequence research in terms of research content and the adoption of an innovative credit rating dimension in terms of research perspective.The conclusions reached in this paper are as follows: aggressive expansion strategy and major internal control deficiencies are the most important reasons for Hainan Airlines’ bond defaults,bond defaults can have serious adverse effects on the company’s share price,financing capacity and profitability,and China’s bond rating mechanism needs further improvement.