Troubled times ahead for Hong Kong plane owners

Before the Covid-19 pandemic hit Hong Kong, at least 120-130 private jets were reportedly parked outside a dedicated terminal at the city’s busy international airport. But when Justin Yeung, chief strategy officer at Hong Kong-based business jet operator Metrojet, went there to do a count in February, he found just 30.

The pandemic has forced even the wealthiest in Asia’s biggest financial center to make tough decisions. “were talking [owners who are in] the Forbes top 50 and down,” Yeung says. “They could have homes in many parts of the world and there are planes based here flying around the EU and the US.”

But, while some wealthy Hong Kongers and mainland Chinese have opted to fly their jets overseas, others have decided to sell them. Border closures amid the world’s toughest lockdowns have weighed heavily on the region’s private and business travel market.

China’s pursuit of a Covid-zero strategy – including a weeks-long quarantine requirement – has upended billionaires’ travel plans. Many have chosen to base themselves and their planes in countries with more relaxed travel rules. However, those affected by the restrictions have found a ready market for their planes in the United States. The administration of former President Donald Trump introduced a tax break allowing individuals to deduct the cost of a jet from their federal taxes starting in September 2017.

Mainland China’s business jet fleet fell slightly from 346 in 2020 to 340 last year, while Hong Kong’s fleet fell more sharply from 120 to 101, according to data from the travel data provider Asia Sky Media.

“Managing private jets on behalf of customers who own their own aircraft has been hit very hard – this is a general industry trend in greater China,” Yeung said. “Because of the closed borders, people don’t want to fly or [if they are] they are flying [outside Hong Kong].”

Some owners had hoped for an easing of restrictions, but China only appeared more committed to its Covid-19 elimination strategy. The policy has resulted in strict shutdowns – one of which brought Shanghai to a standstill in March – and severe restrictions in Hong Kong.

Quarantine periods and frequent suspensions of air routes if a flight carries a number of Covid-positive patients have been a nightmare for commercial airlines such as the de facto airline Cathay Pacific.

In March, Cathay said her crew spent a total of more than 73,000 nights in quarantine hotels and government facilities last year. Hong Kong authorities also banned passenger flights from eight countries between January and April this year, reducing the number of incoming planes.

Simon Bambridge, commercial director at TAG Aviation, a private jet management and charter service, says airlines have had to find all sorts of innovative ways to comply with the rules while keeping jets in the air. In one case, he says, to avoid quarantine, the crew was flown in by helicopter from Hong Kong to fly out of Macao, another nearby Chinese territory.

“There are all sorts of weird things we had to do,” Bambridge says, adding that the logistics of supporting air operations have been expensive and sometimes cumbersome. “What you can do one week, you can’t do the next.”

Slim picks: Hong Kong International Airport in March © Dale Da La Rey/AFP/Getty Images

Top executives have struggled to secure an exemption from Hong Kong’s quarantine rules, while others have been wary of taking the option for fear of a public backlash. Among those who managed to bend the rules were Hollywood star Nicole Kidman and JPMorgan Chase chief Jamie Dimon. They both avoided spending three weeks confined to a hotel room, although the cases caused public outcry.

Even if people on board a jet are exempt from quarantine, this might not extend to crew, meaning the plane must turn around immediately. Some international airlines have completely canceled flights to Hong Kong and in some cases crew refused to visit the city, reducing capacity on commercial routes.

In April, Willie Walsh, chief executive of the International Air Transport Association, the airlines’ trade group, told a press briefing: “Hong Kong as an international hub has slipped; he is effectively off the map now. And I think it will be difficult for Hong Kong to recover.

Lack of flights was a problem earlier this year when the government considered a lockdown following Hong Kong’s worst Covid-19 outbreak, which sparked an exodus of expats and locals. While a hard lockdown never happened, a now-discontinued policy of separating Covid-positive children from their parents in hospitals and extended school closures has led many residents to decide to move out.

Many Hong Kongers embrace migration schemes, such as the UK National (Overseas) route to citizenship offered by the UK. But the shortage of flights meant departing residents, especially those with pets, decided to fly privately. In some cases, they pooled their resources to pay for the flight, leading to a boom for private charter companies. Pet Holidays, a Hong Kong-based company, has organized dozens of private jet flights over the past two years for the purpose of relocating pets. Such a service can cost around HK$200,000 ($25,665) for each owner with their pet.

However, there has not been such a boom for aircraft management companies. Macau Jet International, which ferried executives in and out of this city, best known for its casinos, is closing its doors. “Even our planes have been sold,” says Mario Tone, the company’s IT manager. “There were a few problems, [but] once in quarantine it’s quite complicated [to keep operating].” Similarly, Duncan Daines, chief marketing officer at private jet operator Gama Aviation, says his company has had to downsize in Hong Kong. “The team is smaller, partly because [due] to the lower levels of flight activity caused by the pandemic,” he explains.

A financial crisis at Evergrande, China’s second-biggest property developer, also spurred private jet sales. The company and its chairman, Hui Ka Yan, owned planes that are currently being sold, as well as a 60-meter megayacht docked in Hong Kong.

Desmond Shum, author of Red Roulette – an account of the “golden age” of Chinese entrepreneurs in the mid-1990s – wrote that Hui “envisioned a floating palace for officials’ wine and dinner off the coast of China, away from the prying eyes of cops Chinese anti-corruption and its nascent paparazzi”. Other tycoons close to Hui even had to auction off their vintage wines and art collections to raise funds in the wake of Evergrande’s struggles.

“In terms of jets sold. . .[the industry is]certainly see more than what has been seen historically,” observes TAG’s Bambridge. “The [US] tax breaks are history.

Justin Yeung in a suit, staring straight into the camera with his arms crossed

Justin Yeung, Chief Strategy Officer at Metrojet © Manuel Wong Ho

Before China’s lockdown intensified this year with the appearance of Omicron, wealthy Chinese had been able to travel within the country. Bambridge says that had made domestic travel in mainland China the busiest private jet market in the region during the pandemic.

However, Hong Kong was a slightly different story, as the border it shares with the mainland was effectively closed, with any resident entering China subject to quarantine. So instead of traveling, the city’s billionaires who decided to stick around spent their time twirling between golf and their superyachts.

At the same time, however, the city’s woes have shone a spotlight on Singapore, seen as poised to take advantage of buoyant consumer markets and growing middle classes across Southeast Asia. Bambridge says TAG plans to expand into the city-state, and he thinks there’s renewed interest in private travel after the worst of the pandemic. “We are looking to increase our presence in Singapore and put more boots on the ground,” he says, predicting that the greater China region will remain “subdued” this year. “There is not a lot of charter capacity [in south-east Asia] for the number of inhabitants and wealth of the region. As the borders open up, we’re going to see a lot of interest.

Others have sought a temporary berth elsewhere as Hong Kong and China maintain quarantine requirements. “Some of my friends have moved to Thailand for a few months,” observes a bank executive in the city. Another senior Hong Kong businessman told the FT he was leaving for ‘at least’ a few months as he needed to meet face-to-face clients and had already seen Europe and the US s ‘to open. “The show must go on,” he says.

This article is part of FT Wealtha section offering in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investing

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