Swissport bosses demanding taxpayer bailout shared in $300m China bonanza

By Anthony Klan| 22 June, 2020
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The mansion in Brisbane’s Ascot that Swissport Australia boss Glenn Rutherford bought for $11m, just days after selling company to China’s HNA. Source: Supplied
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In 2018 its managers hit the jackpot, sharing in tens of millions of dollars they had just made selling their Brisbane company for a massive windfall to a shadowy Chinese conglomerate. The boss went straight out and bought himself an $11 million mansion. Now it has its hand out for a $125 million taxpayer bailout. Meet Swissport down under. Anthony Klan investigates.

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- Foreign ownership of Swissport Australia hidden from corporate regulator

- No accounts filed for years, in breach of corporations law

- Sold off by local management in 2018 for 2.5 times its value less than 4 years earlier

- Highly destructive sale, exposes Brisbane company to over $1.4 billion in international debts

- Bonanza for Australian management - local boss revealed as mystery mansion buyer

- Boss brokers sale - later denies having met buyers

- Swissport Australia key part of Virgin collapse negotiations

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Baggage handling company Swissport Australia - which has threatened to sack 2,000 workers if it isn’t handed a $125 million taxpayer bailout - hid its foreign ownership from the corporate regulator and broke the law by failing to lodge its accounts for several years, further concealing its true ownership structure.

It can also be revealed that the 2018 purchaser of a Brisbane trophy mansion - which at $11m set the record for the most expensive home ever sold in the blue-ribbon suburb of Ascot - was Glenn Rutherford, the head of Swissport’s Australian operations.

The baggage handling and check-in company made headlines in April when Rutherford, less than 48 hours after Virgin Australia collapsed, appeared in a page-one story in The Australian newspaper warning he would be forced to sack up to 80 per cent of its workforce, about 2000 people, if Swissport did not receive a $125m government bailout.

Seeking to exert maximum government pressure, Swissport had also approached The Australian’s stablemate, Queensland’s The Courier Mail, which prominently ran data provided by Swissport detailing where - and in which federal electorates - the Swissport employees lived.

Despite the ongoing tensions between Beijing and Canberra, neither article mentioned that Swissport was 100% owned by shadowy Chinese conglomerate HNA Group, controlled by the Chinese Communist Party.

Swissport’s strategy was briefly successful - Transport Minister and Deputy Prime Minister Michael McCormack said he would “seriously consider” Swissport’s requests, and the articles were followed by media outlets nationwide.

But it backfired when Rutherford fronted then 2GB Radio commentator Alan Jones on April 23.

After repeating his calls for massive government handouts, Rutherford appeared to be caught off guard when quizzed about the company’s actual ownership structure - and whether it was in fact a subsidiary of China’s HNA Group, a “Chinese state-owned enterprise”.

“Ah Swissport is a Zurich-based ahh business which is, whose shareholder is owned by HNA, with HNA yes,” Rutherford responded.

Swissport’s Australian operations, officially named Swissport ANZ, are fully-owned by Swissport International - which owns the whole Swissport group - which while being headquartered in Zurich Switzerland, is fully-owned by HNA Group, which is based in Hainan China.

HNA Group bought the entire Swissport group in 2016 for $US2.6 billion ($3.8bn).

Rutherford told Jones he had been “running this company for 26 years”, that he understood some people may have concerns about its ownership but “the reality is we have an Australian board, Australian management, and we employ Australians”.

Our subsequent investigations found Swissport had misled the Australian Securities and Investments Commission, formally telling the regulator its “ultimate owner” was Swissport ANZ, of Brisbane.

They company had also failed to lodge its annual financial reports since 2016, meaning the nation’s corporate regulator did not have a single document which disclosed Swissport Australia’s actual ownership.

We approached both Swissport and ASIC - which has long been attacked for its failures in holding corporate wrongdoers to account - about the breaches of the Corporations Act.

ASIC spokesman Gervase Green said it appeared to him that it was “no secret” that Swissport was owned by HNA, and sent us several links to foreign news articles.

Our subsequent requests for comment were ignored and it appears ASIC has taken zero action against the company.

The legal breaches are particularly relevant given Swissport runs check-in, baggage handling, and security work at every major Australian airport.

Shadowy conglomerate

 

HNA has raised security concerns across the world, with many major companies refusing to deal with it. 

In July 2017 Bank of America joined fellow financial giants Citigroup and Morgan Stanley in banning business with HNA because its opaque structure made it impossible to determine who owned it - and so impossible to determine who they were actually doing business with.

Exiled Chinese tycoon Guo Wengui has made a string of corruption allegations against high-level Communist Party officials and in April 2017 began making specific allegations about HNA Group - including that Chinese government officials and their relatives were undisclosed major owners of the company.

HNA Group denied the allegations and launched defamation action against Guo, suing him in the US Supreme Court for “at least” US$300m ($440m), but later dropped the case.

With a handful of notable exceptions, HNA Group has long escaped the attention of Australian media, although foreign outlets have covered its unusual activities for several years.

The “once little-known airline operator” gained foreign media and regulator attention after launching a massive, debt-fuelled foreign acquisition spree, which saw it make over US$40m ($59bn) in acquisitions between 2016 and late 2017. 

HNA Group was born out of Hainan Airlines, which was created by China’s Hainan Government in 1993.

HNA Group’s massive debt levels had also attracted attention.

The company’s debt had exploded under founder and co-chairman Wang Jian, “regarded as the architect of its eye-popping” acquisition spree which had angered Beijing.

In July 2018 Wang, 57, died in unusual circumstances after allegedly “falling 15 metres off a wall” while in southern France, reportedly on a business trip.

After Wang’s death HNA Group subsequently ramped up its Beijing-ordered sell down of assets, which its new managers said had “erupted in late 2017”.

However debt continued to plague the group, and in the lead up to Virgin Australia’s collapse in April, the Chinese government effectively took full control of HNA Group.

Experts said it was now “turning into a state-owned enterprise”, although it had not been classified as such before.

After we contacted Swissport Australia about its disclosure breaches, the company said they were the result on an error and would update ASIC with its correct ownership information and file its missing three sets of annual financial accounts.

Searches show the company has since done so, having filed its accounts for 2017, 2018 and 2019.

The “ultimate holding company” Swissport Australia is now correctly disclosed in ASIC’s registers as HNA Group.

Management bonanza 

 

When we approached Swissport Australia executives about its disclosure and ownership discrepancies, they told us the company would collapse if it could not secure the government bailout, and that it had no choice over who its owners were.

However it was those same executives who actually sold the company to HNA Group in 2018 - and at what appears to have been a vastly inflated price, in a deal that seriously undermined its financial viability.

The company had previously been Aero-Care, founded in Brisbane in 1992.

Rutherford had been CEO of Aero-Care since 2000.

In his radio interview with Jones, Rutherford said he had “never once spoken to a member or an employee of HNA”.

Aside from the fact that Rutherford himself, along with Swissport Australia’s 2,500-odd staff, are all HNA employees, the claims are unusual: Rutherford’s biography says that while at Aero-Care he “led the sale to Swissport International”.

Rutherford led a “management buyout” of Aero-Care in 2011, whereby he and other Aero-Care executives took control of the company in a deal backed by Sydney private equity company Next Capital.

In 2014 another Sydney private equity company, Archer Capital, “partnered with management to acquire and recapitalise Aerocare”, buying out Next Capital in a deal valuing Aero-Care at about $220m, according to S&P Capital IQ data.

In late 2017 Archer Capital and Aero-Care management contracted to sell the entire company to HNA's Swissport International for over $500m - about $300m, or 2.5 times, what it had been worth just three years earlier.

(Swissport International borrowed 325m Euros ($530m) in order to fund the deal).

The sale, which was finalised in March 2018, four month's before Wang's death, delivered vast amounts of money to Aero-Care management and a handful of Archer Capital executives.

It was unclear why HNA bought Archer Capital in 2018 given it faced major debt problems.

However, soon after the sale, Swissport ANZ was made a guarantor on almost $1.4bn of Swissport group loans.

Much of that debt was at a very high 9.75%.

Just days after the sale of Aero-Care Swissport International was completed on March 7 2018, it emerged Dominos Pizza boss Don Meij had sold his sprawling “Hamptons style” mansion for $11m, which was $2.385 more than he had paid for it two years earlier.

The sale broke the record for the most expensive property ever sold in Ascot, one of Brisbane’s wealthiest suburbs, and was the second highest price paid for a Brisbane home that year.

“Details of the new owner remained shrouded in secrecy”, said one report, with the sales agent quoted saying the new owner “wanted to remain private”.

Rutherford was that buyer, we can now exclusively reveal.

 

Swissport-Virgin ties

 

Swissport is closely tied to Virgin Australia.

Virgin Australia is Swissport Australia’s biggest customer, and HNA Group is one of the major foreign owners of Virgin Australia, having bought a 13% stake in the company in May 2016, which it soon increased to 19.85%.

(It has been regularly incorrectly reported that Virgin Australia’s workforce is around 16,000, however at the time of its collapse it had around 10,000 employees. The higher figure is an estimate which includes the workers of the airline’s key suppliers, including those of Swissport Australia).

As part of its debt purge, HNA has been attempting to sell Swissport International since 2018 but has been unsuccessful.

In February Reuters reported that HNA had rekindled sales negotiations and put Swissport on the market at a “big discount”, hoping to cap its losses and fetch US$2.3bn ($2.4bn).

Experts expected bids were likely to be lower, at around US$2bn ($2.9bn).

Either way, no sale occurred.

Among those reportedly circling HNA were US giants Apollo Global Management, Bain Capital and Cerberus Capital Management and Canada’s Brookfield Asset Management - all of which have been reported as vying for Virgin Australia since its collapse.

The two shortlisted bidders for the airline are Boston-based Bain Capital and global investor, Cyrus Capital Partners. 

They have until today (Monday) to submit binding offers for the failed airline.

The accounts filed by Swissport ANZ for the year to December 31 show that both it and Swissport International now face a “material uncertainty” regarding their ability to continue as going concerns.

Swissport International spokesman Christoph Meier told us this situation was a result of the Coronavirus pandemic and had been included as a “post balance day event” in the December 31 accounts, published in April.

Also connecting Swissport and Virgin Australia is US “boutique financial services firm” Houlihan Lokey.

On April 2 it emerged Houlihan Lokey had been appointed to Swissport International to oversee a possible restructure of its US$1.7bn ($2.5bn) of debt and that Swissport International planned to “lay off 40,000 by the end of the month, more than half its workforce”.

Days later, on April 13, it emerged Virgin Australia had also appointed Houlihan Lokey to restructure its billions in debt.

Virgin Australia was placed in the hands of administrators Deloitte on April 21, with debts of almost $7bn.

In another connection, Deloitte has appointed Houlihan Lokey, along with Morgan Stanley, to run the Virgin Australia sales process.

Bain Capital and Cyrus have both suggested they would retain the existing Virgin Australia management if their bid is  successful. Our investigations indicate this would be a huge mistake.

Up Next:  How Paul Scurrah’s Virgin Australia orchestrated a systemic cover-up for the notorious HNA Group to help it vastly expand its secret Australian operations.

© 2020 Anthony Klan. All rights reserved.