Notorious HNA Group sets up via secret network…then Virgin runs the cover-up

One of China’s most notorious conglomerates used a web of offshore companies to secretly set up operations in Australia. It is at least the third time HNA Group has lied to Australian authorities, masking its true identity. Virgin Australia, co-opted by HNA as a stalking horse, is connected each time. It’s also led the cover up. Anthony Klan reports.

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EXCLUSIVE

ANTHONY KLAN

China’s notorious HNA Group secretly set up shop in Australia years before buying into Virgin Australia, lying to regulators and masking its true ownership through offshore shelf companies.

HNA Group, which a string of major US companies including Bank of America have long refused to business with – and which is now 100% controlled by the Chinese Government – launched operations here at least as early as mid-2013, secretly buying two NSW flight training academies.

The opaque international conglomerate bought, and continues to operate, the flight academies in Port Macquarie and Kempsey on the NSW mid-north coast, but repeatedly lied about its involvement in official documents filed with corporate regulator the Australian Securities and Investments Commission.

Virgin Australia CEO Paul Scurrah led a systemic – and until now largely successful – operation to silence the media, preventing the publication of this and many similar reports.

The Klaxon can reveal that this is at least the third separate instance where HNA has given false information to Australian authorities.

In each case that false information has masked HNA’s ownership of substantial Australian assets.

Each case involves Virgin Australia.

Between them, HNA and China’s Nanshan Group, a shadowy conglomerate which is also closely tied to the Chinese Government, own up to 46% of Virgin Australia, which they bought into at the same time in 2016.

Completely separate from its stake in Virgin Australia, and at least three years before it bought into Virgin, HNA, under a sham name, bought the flight training academies at Port Macquarie and Kempsey – which are run by a group called the Australian International Aviation College (AIAC).

HNA and Nanshan used Virgin Australia and AIAC to run their clandestine push to build and operate the nation’s biggest flight training school – a new mega-facility to be built in Tamworth NSW, at the site of what had been the Australian Defence Force’s biggest flight training academy.

Virgin Australia – with the approval of its Australian management and board – was used as a stalking horse, with the airline’s outward “Australian” appearance used to mask the true proponents of the Tamworth scheme.

The China flight school scheme had been kicked off by former Virgin CEO John Borghetti.

But his replacement Scurrah, who presided over the company for a year before it was swept into administration in April with debts of $7 billion, picked up the secretive project and ran with it hard.

Despite the fact that Virgin Australia only trained around 20 pilots each year – and that the proposed Tamworth flight school would train 500 or more pilots a year simultaneously – the proposal was consistently presented as being Virgin Australia’s.

Scurrah’s systemic cover-up had ensured HNA’s covert dealings remained largely in the dark.

Alongside muzzling the media, Virgin also hid the true proponents of the proposed Tamworth mega flight school at a key meeting with NSW and Federal Government officials – including federal MP Barnaby Joyce and NSW Deputy Premier John Barilaro.

There are numerous valid reasons for Chinese entities wanting to establish flight schools in Australia, including the relatively stable climate and open skies (compounded by the fact that China’s military has declared much of its airspace no-fly zones).

However when this is done secretly, including by lying to media and regulators and hiding operations from the public, very serious questions arise.

Dionysus

HNA Group, which owns China’s Hainan Airlines, owns, officially at least, 19.85% of Virgin.

While HNA bought into Virgin Australia in 2016, it has actually been operating in Australia since at least 2013.

In June 2013 HNA bought 80% of AIAC (then called Arena International Aviation), which had operated the Port Macquarie and Kempsey flight schools since the 1990’s, but it told regulators it was actually a Hong Kong-based company called Dionysus International Investment Co. Ltd.

Since 2013 the company has repeatedly filed signed documents with the Australian Securities and Investments Commission stating that the “ultimate holding company” of the Australian International Aviation College (AIAC) was  Dionysus International Investment Co. Ltd.

In fact it is HNA Group.

The address for Dionysus is: “Flat/rm 2103, Futura Plaza, 111 How Ming Street, Kwun Tong, Hong Kong”.

Documents filed with the Hong Kong regulator show Dionysus is 100% owned by a company called Zhonghao (Hong Kong) International Investment Management Limited.

That company is registered to the same Hong Kong address.

However neither company exists other than on paper.

The address – 2103, Futura Plaza, 111 How Ming Street, Kwun Tong, Hong Kong – is actually the office of Kaizen Corporate Services, a Hong Kong and mainland China company which specialises in “offshore company registration” in tax havens.

According to its website, Kaizen Corporate Services specialises in creating companies in the Cayman Islands, the Bahamas, the British Virgin Islands, Samoa and Belize, as well as in Hong Kong and Singapore.

Company documents show Zhonghao (Hong Kong) International Investment Management Limited is 100% owned by 海航集团, which is HNA Group Pty Ltd, of Guoxing Avenue Hainan China.

HNA Group and the AIAC have repeatedly declined to comment when contacted.

When a colleague and I visited AIAC’s headquarters in Port Macquarie last year, its CEO (who we were told had been in the building minutes earlier) had disappeared. We left messages with him to contact us – they were not returned.

The “Ultimate Holding Company” of the Australian International Aviation College is falsely declared. It is actually HNA Group. Source: ASIC

Cover-up

In March last year, then working as a long-time investigative reporter for The Australian newspaper, I discovered that a new flight school project Virgin Australia had announced for Tamworth NSW in October 2018 was in fact being run by HNA, and that HNA had said it was the first Australian flight school to be approved by the Chinese Communist Party.

Virgin Australia aggressively denied the claims.

“The idea that we are in secret talks is completely untrue, and any suggestion that this is anything other than confidential, commercial negotiations would be wholly unsubstantiated,” Virgin Australia spokeswoman Libby Armstrong said at the time.

This was despite overwhelming evidence.

In August 2018, months before Virgin announced its Tamworth project (and in doing so had made no mention of any other investors whatsoever) HNA’s Hainan “officially launched” the mega-project at a Sydney press conference to which only Chinese-language media had been invited.

I knew this because, I had obtained a translated press statement about the event.

An August 16, 2018, statement to Chinese media about the launch of the mega-project. Source: Supplied

Not only that, but the event had been co-hosted by senior Virgin Australia executive Peter Cai, who appeared in accompanying photos.

The reporting was 100% correct.

The Tamworth mega-facility was signed off by the Foreign Investment Review Board, overseen by Treasurer Josh Frydenberg, in October last year.

On March 13 of this year, Virgin announced the Tamworth project had been cancelled and blamed Coronavirus – but the key reason was almost certainly because HNA, the project’s true backer, was on the verge of bankruptcy.

The August 2018 Sydney “official launch” of the planned mega flight school that Virgin Australia months later denied existed. Virgin senior executive Peter Cai is third from the left. Source: Supplied

As previously reported, Virgin Australia, the  office of NSW Premier Glady’s Berejiklian, the NSW Liberal Government and News Corporation Australia covered up the secretive HNA dealings.

In March last year Scurrah’s Virgin told me it had been “completely transparent” in its discussions with the “appropriate parties” about its “intention to work with a number of suppliers, including AIAC”.

Virgin said it had attended a meeting about the project on 24 October 2018 at NSW Parliament House, which had been also attended by “the Department of Premier and Cabinet”; the “Deputy Premier of NSW (John Barilaro) and his Chief of Staff”; the “Member for Tamworth (Barnaby Joyce)”; the “NSW Department of Industry”; and Tamworth Mayor Col Murray and the council’s general manager.

“In this meeting, Virgin Australia’s proposed involvement with AIAC was fully disclosed, in fact, AIAC (including their chief pilot) have been to Tamworth on a number of occasions,” Virgin’s Libby Armstrong said.

But Virgin not only failed to tell the meeting that AIAC was actually owned and controlled by the notorious HNA – but it didn’t disclose any foreign ownership of AIAC whatsoever.

I contacted Barnaby Joyce in March last year, five months after that meeting, and he said he had no idea about any involvement of any Chinese (or any foreign investors whatsoever) in the project.

He was outraged and demanded Virgin come clean on the whole deal.

This never happened.

When I pressed Virgin Australia about its failure to inform the meeting about the foreign involvement, Armstrong said “ownership structure information is publicly available”.

But even if this were somehow a valid excuse for actively misleading the government (which it clearly isn’t) that information wasn’t publicly available at all: HNA Group had lied to ASIC, masking the true ownership of the flight school.

Virgin Australia’s Armstrong claimed it was “known” that AIAC was controlled by Hainan Airlines, owned by HNA Group.

However experts we spoke with, including Barnaby Joyce, local, state and federal politicians, and former Civil Aviation Safety Authority head Dick Smith all said otherwise (as do ASIC’s records).

HNA

HNA Group has long raised serious security concerns worldwide because its opaque structure makes it impossible to determine who actually owns the company.

It has long been accused of being owned by a senior Chinese Government officials.

It is now undisputedly 100% controlled by the Chinese Government, which officially took control of it earlier this year when it was on the verge of collapse.

Virgin Australia is at least 91% foreign owned and its five main shareholders are HNA (19.85%), China’s Nanshan Group (20%); Singapore Airlines (20%); Etihad (21%); Richard Branson’s global Virgin group (10%); with the remaining 9% “free float” and traded on the ASX.

Weeks after HNA bought into Virgin in 2016 it emerged that Nanshan Group had also bought a major stake – although it appears at the time that no media made the link that the two Chinese Communist Party-linked entities were actually acting in unison.

Both bought stakes just below 20%, the trigger for formal takeover proceedings under the Corporations Act.

While officially HNA and Nanshan own 40% of Virgin Australia,  an insider to the Tamworth scheme said the two companies owned a total of 46% of Virgin Australia.

“In dealing with them it was just common knowledge that HNA and Nanshan were running the project and that they had 46% (of Virgin Australia),” the insider said.

In the eyes of many Australians, Virgin has incorrectly been viewed as an “Australian” company, given it is based in Brisbane and its employees are overwhelmingly local.

“They (the foreign owners) are the ones who actually own the company, it’s their company so of course they call all the shots and tell the local management what to do,” the source said.

Behind-the-scenes in March last year, Virgin told at least one editor at The Australian (this occurred behind my back) that the only reason the Tamworth flight school project required FIRB approval was because two of Virgin Australia’s major shareholders were Singapore Airlines and Etihad, which were ultimately owned by foreign governments.

(I.e. Not because AIAC, Virgin Australia’s partner in the Tamworth project, was in fact foreign-owned, by HNA Group. And not because HNA owned a major stake in Virgin Australia).

AIAC

The Australian International Aviation College started life in 1990 as Kempsey Pilot Training, founded by Kempsey locals David Johnston and his family.

In 1993 it became Johnston Aviation Services and in 1997 moved its headquarters to Port Macquarie Airport, where it had set up another flight school.

In 2006 the company was taken over by a colourful local businessman and cosmetic breast surgeon, New Zealand-born Guy Richard Kingston, and its name was changed again, becoming Coastjet Pty Ltd.

In January 2009, under Kingston, the company collapsed and was placed in the hands of administrator David Leigh of accountancy firm PPB.

Four months later a businessman called Li Chunming, who according to ASIC documents is 61 and was born in China, took control of the company, taking it out of administration and changing its name to Arena International Aviation Pty Ltd.

In July 2014 the company’s name was changed to the current Australian International Aviation College Pty Ltd.

It remains controlled by HNA (although not in ASIC’s records) and runs the flight schools in Port Macquarie and Kempsey.

The site of AIAC’s (HNA and Nanshan’s) planned Tamworth mega flight school. Source: Supplied

HNA hat trick

The secret AIAC dealings present at least the third time HNA has seriously misled Australian authorities.

In early January 2018, HNA Group and Virgin Australia filed to the Australian Securities Exchange a 22-page document.

The document contained the names and addresses of 502 HNA “related entities” that it had failed to disclose, admitting if had filed to the ASX five incorrect ownership disclosure notices between August 2016 and October 2017.

This was big news, particularly given that it shed more light on the notoriously murky HNA, and was covered internationally, although it appears most Australian media either missed the story entirely or failed to grasp its significance.

HNA Group said it had failed to disclose the 502 companies in its earlier five ASX disclosure notices “due to an oversight”.

Among the 502 companies which held a “relevant interest” in Virgin Australia but which had

Been disclosed were an entity called China Civil Aviation Group, based on Hong Kong; Victory Global Group Limited, of “PO Box 957, Offshore Incorporations Centre” in the British Virgin Islands; and a company called HNA Belt and Road Investments (Singapore) Pte. Limited.

It was no clear what prompted HNA to make the disclosure.

However weeks earlier, in December 2017, New Zealand’s Overseas Investments Office blocked HNA from buying UDC Finance, then an arm of ANZ Bank, which it had planned to takeover in an NZ $600m ($637m) deal.

The NZ Government said it had done so because it could not verify who owned HNA.

A month before that, Swiss authorities said HNA had provided “untrue or incomplete” information regarding HNA’s ownership when it bought Swiss air services company Gategroup in 2016.

HNA has also been accused of giving false information to US authorities.

Despite grilling by regulators in the US, New Zealand and Switzerland, it appears HNA Group faced very little – if any – scrutiny from Australia’s FIRB.

“If corporate regulators in New Zealand and Switzerland can, why can’t ASIC, ASX and the Foreign Investment Review Board (FIRB) follow suit and question who exactly owns high-profile Chinese conglomerate HNA Group which is said to control a 19% stake in Virgin Australia airlines?” one expert asked at the time.

The “Ultimate Holding Company” of Swissport’s Australian operations were falsely registered. It is in fact HNA Group, Hainan China. Source: ASIC

Swissport

One of Virgin’s biggest contractors, ground services, check-in and security company Swissport Australia, is also owned by HNA Group.

And, as we revealed last month, Swissport Australia’s true ownership structure was also hidden from Australian authorities.

Swissport’s Australian operations – officially named Swissport ANZ – are fully-owned by the Swissport Group, also called Swissport International.

Swissport International is headquartered in Zurich, Switzerland, but is fully owned by HNA, based in Hainan, China.

However Swissport told ASIC its “ultimate owner” was Swissport ANZ, of Brisbane.

We also revealed Swissport Australia had failed to file its accounts for several years, an act which further masked its true ownership.

After our inquiries Swissport filed its accounts and corrected the ownership information it had filed with ASIC.

The company told us the incorrect information had been filed as a “mistake” due to an “oversight”.

Before this, the regulator had not one official document that showed the true owner of Swissport Australia.

Before being taken over by HNA’s Swissport in 2018, the Brisbane company had been called Aero-Care, which was founded in 1992.

Swissport Australia, now 100% controlled by the Chinese Government, operates baggage handling and conducts security operations, in all major Australian airports.

Next: Meet the mysterious Chinese “conglomerate” running the Australian International Aviation College with HNA, which vanished from its long-term Sydney offices weeks after we went knocking.