Exclusive | Troubled Hong Kong Airlines faces yet another headache as its auditor resigns, company filing shows
- A document lodged with Companies Registry shows certification of auditor’s resignation, understood to be PwC
- Beleaguered carrier faces increased scrutiny from government with its licence at risk while rival camps battle for control of parent company
The auditor for the financially troubled Hong Kong Airlines has resigned, according to a company filing.
A document lodged by the airline with the Companies Registry showed a “notification of resignation” of its auditor. The filing was posted on May 3 but the document has not been made accessible to the public yet.
Though not named, the position was understood to be held by PwC, one of the big four auditing firms.
In a response to the Post, PwC declined to elaborate on the resignation, citing client confidentiality. It added it was not obliged to explain since Hong Kong Airlines was a privately held company.
The airline was also contacted for comment.
The filing was one of a series of changes made in recent weeks, principally surrounding the frenetic boardroom activity at the airline’s holding company, which was subject to an ongoing court case to determine who was really controlling the business.
In the last six months, Hong Kong Airlines had been thrust into the spotlight over growing worries about its financial health.
The concerns prompted greater scrutiny by the government, with the company’s airline operating licence placed at risk due to its money troubles.
Hong Kong Airlines was said to have lost HK$3 billion last year and requires a HK$2 billion cash infusion to keep its licence.
As financial scrutiny of the company increased, the reasons for an auditor’s resignation could be one of several.
Government presses Hong Kong Airlines to further clarify finances
“Usually an auditor will resign because they suspect there may be a problem with the client’s integrity and the auditor is not comfortable with that so to protect the firm’s reputation they may choose to resign,” said Dr Edmund Wong Ka-lok, director of Chinese University’s professional accountancy programme.
He added there were other practical reasons for resigning, including fees received not being commensurate with work done. There could also be conflict of interest issues or the client might itself decide to change auditors.
No matter the reason for the resignation, it comes at a time when there is a lot of news circulating about the company and this is another potential distraction
David Yu, finance professor at New York University Shanghai, said there were a variety of legitimate reasons an auditor might resign, including regular auditor rotation, as well as other, more negative, ones. These moves, he said, happened only occasionally.
“In this case, no matter the reason for the resignation, it comes at a time when there is a lot of news circulating about the company and this is another potential distraction,” Yu said.
While the circumstances surrounding the resignation were not clear, in another case in March, Asiana Airlines failed to get its financial accounts signed off for 2018.
The failure to get the accounts approved exposed the deep-seated financial problems at South Korea’s second-largest airline, forcing its owner to put the company up for sale, to seek US$1.4 billion in financial support and restructure the business to return to profitability.
The Air Transport Licensing Authority was pushing Hong Kong Airlines to also restructure its business to shore up its weak financial position.
Two rival factions tied to the HNA Group will head back to Hong Kong’s High Court later in May to settle who is the true legal owner of Hong Kong Airlines’ corporate parent.
Struggling Hong Kong Airlines cancels more long-haul flights
The current company directors, led by airline chairman Hou Wei, are backed by HNA and, on the opposing side, ex-company boardroom member Zhong Guosong is claiming to be part of a group that legally assumed control of the business in April.
Zhong also indirectly controls a 48.6 per cent stake in HK Express, a sister airline that is in the process of being sold to hometown rival Cathay Pacific Airways.
Since Hong Kong Airlines’ financial problems came to light, a string of directors and top managers have left the airline, while the number of planes, flights, routes and the workforce has shrunk. HNA has also attempted to sell the ailing business as part of a wider divestment but without success.
