Crash landing for Oasis Airlines

The Hong Kong-based airline goes into liquidation less than 18 months after its first flight and just six months after Value Partners makes a $30 million investment in the company.
Oasis Hong Kong Airlines has filed for bankruptcy less than 18 months after its inaugural flight, with specialists attributing the failure of the airline to the dramatic increase in fuel prices over the last year.

Oasis founder and CEO Steven Miller told media in Hong Kong yesterday afternoon that Oasis may seek new investors to re-capitalise. Some specialists have speculated that another airline may acquire Oasis's ailing operations.

The Oasis website told passengers that it had gone into liquidation at 8.50pm on Tuesday, saying it had in the morning "applied to the Hong Kong Court to appoint a provisional liquidator". Audit firm KPMG was appointed provisional liquidator effective 2.00pm yesterday.

The website suggested passengers contact Cathay Pacific, Air Canada, China Airlines, Singapore Airlines or British Airways to make alternative travel arrangements going on to comment "passengers should note that, owing to the airlineÆs current situation, they will need to meet the cost of these alternate flight arrangements themselves".

The liquidation will affect thousands of passengers who hold confirmed bookings on Oasis and will now be forced to buy far more expensive air tickets as well as 700 staff the airline currently employs. Oasis announced its two most recent senior hires as recently as March 19, poaching industry veterans from Varig Brazilian Airlines and Hong Kong Dragon Airlines as deputy general managers.

Oasis launched in October 2006 with an attention-grabbing Hong Kong-London fare of HK$1,000 ($128). It later added flights to Vancouver. Oasis had its eye on winning business-class passengers as well as budget travellers, with attractive fares and up to 20% of its capacity devoted to the business travel segment. The airline currently owns five aircraft.

The airline was founded by Miller and backed by Hong Kong property developer Raymond Lee. Lee was chairman of the Oasis board. Other financial investors were Allan Wong, chairman of VTech Holdings, and Richard Lee, founder of Trinity Textiles. The initial investment made by the founders and investors in Oasis was $100 million but this fell short as the plan to lease a fleet proved too expensive and had to be replaced by the purchase of two aircraft.

Miller identified a niche for a budget, long-haul Asian carrier while working as a representative for European airports. The Oasis business model was predicated upon high load factors coupled with assumptions on a certain level of costs. And it is the latter that has proven to be OasisÆs undoing since the airline was running load factors of up to 95% towards the end of 2007. Rapidly rising fuel costs have thrown the carrierÆs profitability completely out of gear. IATAÆs price monitor puts jet fuel at $134.3 per barrel on March 28 and estimates it is up 62% compared to one year ago.

Oasis has upset a number of passengers in its short life. The airline was due to start flying on October 25, 2006 but its inaugural flight was delayed at the last minute because it failed to receive approval to fly over Russian airspace in time. It finally took off 24 hours later. And yesterday all Oasis flights were cancelled with no prior notice and passengers were among the last to find out about Oasis's woes.

OasisÆs predicament may have come as a surprise to passengers, but analysts have been predicting difficulties for some months now.

Oasis Airlines will find the present environment particularly challenging since it is a small airline with a relatively weak balance sheet and since it flies long-haul routes, fuel is a high proportion of its cost base, said Damien Horth, managing director and head of Asian transport research for UBS, at a media briefing in March.

In October 2007 Oasis raised $30 million by way of convertible bonds from Value Partners to fund the purchase of more aircraft and expand its network to include San Fransisco, Chicago, Cologne, Berlin, Milan and Sydney. Miller had stated a plan for Oasis to operate eight aircraft by the end of 2008 and 14 by 2011. Value Partners is an asset management firm with funds under management of around $6.5 billion and a focus on investments in the Greater China region.

Value Partners chairman Cheah Cheng Hye is reported to have told press yesterday that the firm had a better than 51% chance of getting its money back. Value Partners did not reply to phone calls requesting clarification.

Meanwhile, Cathay Pacific assured both the HKSAR government and OasisÆs stranded passengers that it would do all it could to alleviate the pain, while noting that its desire to help was limited by its own full flights. Cathay did, however, announce it would add two flights to London on Friday and Sunday, introduce special ticketing arrangements for Oasis passengers booked on flights over the next fortnight and offer special fares to these passengers on Cathay flights to London and Vancouver.

Cathay CEO Tony Tyler used the opportunity to note in a written statement: ôThe Oasis case underlines the tough and competitive nature of the international aviation business, particularly at a time of record high fuel prices and global economic uncertainty."

Value Partners raised HK$2.91 billion in an IPO on the Hong Kong Exchange in November 2007, pricing at the top end of an indicative range at HK$7.63 per share. It closed down 2.5% at HK$5.82 yesterday. Cathay Pacific did not benefit much either from the news that its competitor had gone belly up, closing down 1.75% at HK$15.72. The broader Hong Kong market lost about 1.4% yesterday.
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