A group of creditors is threatening to block a proposed Hong Kong Airlines (HX, Hong Kong International) restructuring plan that will cut the carrier's debt by 74%. Lawyers from Allen & Overy, who represent a disgruntled group of perpetual note holders, told Justice Timothy Fancourt of the UK High Court's Chancery Division on Tuesday, October 25, that they had the numbers to prevent Hong Kong Airlines from getting the all-important 75% of all creditors to agree to the restructuring plan. The carrier owes creditors HKD49 billion (USD6.24 billion) and is attempting to avoid liquidation.

According to a Bloomberg report, this group of creditors are arguing the restructuring plan does not treat them equally to the airline's owner and its affiliates. Hong Kong Airlines is owned by Hainan Airlines (HU, Haikou).

In tandem with a Hong Kong court process, proceedings began in London this week to deal with monies owed to certain lenders, aircraft lessors, and USD683 million worth of bondholders. Under the restructuring plan, those bondholders - unsecured creditors, will only get back about five cents in every dollar - with the promise of more money when the airline's fortunes improve. A revised offer to secured bondholders recently saw their upfront cash offer increased from two-and-a-half cents in every dollar owed to five cents.

The airline needs 75% creditor support to get its restructuring plan over the line. Recently, they said they had secured 73% support. All creditors are due to vote on the plan in December ahead of another court hearing in Hong Kong. The London dissenters say they expect Hong Kong Airlines to apply for a cross-class cram down if they cannot secure the needed 75% support. A cram down allows the majority of creditor classes to bind one or more dissenting classes to the restructuring plan. The airline has already proposed to bundle the votes of secured and unsecured creditors together and the London lawyers say this would steamroll any opposition.

While easing entry restrictions in Hong Kong and Japan have seen the airline's fortunes and revenues revive slightly recently, passengers to the airline's core market of mainland China remain subject to 10 days quarantine, zeroing out demand and severely hampering Hong Kong Airlines' ability to reverse its financial black hole.