What role does the corporate culture play in HNA Group?

HNA Group Question:

· What role does the corporate culture play in HNA Group?

· Will HNA corporate culture translate well to an international context?


1. The answer should cover all questions above

2. The answers should be at least 700 words paper.

3. Do not use other sources other than this article. Just based on your analysis and arguments

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Professors William C. Kirby and F. Warren McFarlan and Research Associate Joycelyn W. Eby prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2016 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

W I L L I A M C . K I R B Y

F . W A R R E N M C F A R L A N

J O Y C E L Y N W . E B Y

HNA Group: Global Excellence with Chinese Characteristics

Chen Feng rested his cup of “Zhao Si Tribute” teaa on a pile of books that ranged from Buddhist philosophy to the latest Hurun Reportb as his eyes took in his expansive view of the city of Haikou, the capital of Hainan province. From his office on the 30th floor of HNA Group’s Buddha-shaped corporate headquarters, his gaze caught everything from the signature palm trees and blue coastline of the “Hawaii of China,” to the offices of the Hainan Provincial government, located on land leased from HNA Group. The government headquarters was bordered by a wide swath of land under development as part of the HNA Group Real Estate Business Unit’s latest project—creating a Central Business District for Haikou. His company had come a long way since leasing its first two airplanes in 1993. Diversified and internationalized, it had already entered the Global 500 in 2015 (See Exhibit 1 for information on the scope of the HNA Group). Beyond taking pride in the scale of his operation, Chen was particularly proud of the quality of his business. “In terms of service,” Chen asserted, “we are already at the highest international level.”

Chen’s thoughts were interrupted by a knock on the door. Li Xianhua, CEO of the HNA Group, entered his office, looking downcast. As CEO, he was responsible for implementing Chen’s vision, and the copy of the recently released 2015 World Airline Awards he passed to Chen indicated disappointing results.c Hainan Airlines had hovered around the #20 spot for five years, and in 2015, despite HNA

a In the early 16th century, Confucian scholar Wang Yangming cultivated tea trees in Guizhou. During the reign of the Qianlong emperor in Qing dynasty, a Guizhou scholar achieved one of the top three scores in the civil service examination, and thus had an audience with the emperor. As a gift, he brought with him tea from the tree planted by Wang Yangming. The emperor, impressed with the tea, named it “Zhao Si Tribute” Tea, after the local tribes of Guizhou. Subsequently, scholars at the Guizhou Agricultural Academy cultivated around 16 acres of the trees, but did not market the tea very well. Chen Feng tasted the tea while visiting the local tea shop, and immediately offered to buy all of the tea. As Chen noted, “Right now, the best tea in China is only in two places: the local government, and in the entrepreneurial world.”

b Also known as “China’s Rich List,” the Hurun Report tracked and ranked high net-worth individuals in China.

c While there were multiple international awards for airlines, the Skytrax World Airline Awards were the most comprehensive, international investigation of passenger experience. The results came from data collected through online passenger surveys completed between September 2014 and May 2015. Airline customers were asked their opinions on 41 key performance indicators of airline product and service. The 18.89 million completed surveys represented customers from 105 different countries and covered over 245 airlines, including international and domestic carriers.

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management’s confidence in its product, its ranking had fallen to #22 (see Exhibit 2 for a complete listing of HNA’s rankings since 2011 and Exhibit 3 for a listing of the top airlines in Asia). Li was quick to point out that, as it had been for many years, Hainan Airlines was ranked as the top airline in China both overall and for service. Indeed, it was well ahead of its domestic competitors in international rankings: China Southern, China Eastern, and Air China ranked 36th, 85th, and 93rd, respectively, in the 2015 World Airline Awards. Moreover, Hainan Airlines had maintained its elite 5-star rating from the professional quality assessment team at Skytrax since 2011 (see Exhibit 4 for a breakdown of Hainan Airlines’ 2015 Skytrax ratings). Chen wondered, why hadn’t this domestic success yet translated into international customer recognition?

Elevating service to an international standard was not the only challenge for Chen as he sought to bring his domestic success to the international stage. Chen was a Buddhist researcher and scholar, and a proponent of traditional Chinese culture. He attributed much of HNA’s success to its unique corporate culture, a combination of Confucian, Buddhist, and Daoist values developed by Chen over the years. So far, he felt that HNA had been able to continue to incorporate its culture into its international acquisitions. But as it continued to grow globally, would it be able to maintain a cohesive culture?

Growth and Development of HNA Group

First, you have to have an excellent service mentality; you are working for the customer. Second, safety has to be the most important principle. All of your work in your company revolves around these two items, including your investments, training, airplane repair; everything focuses on these two goals. Achieving these two goals can be divided up into very specific, concrete steps that can be focused on every day. In 20 years we were able to reach them. We didn’t give up for a single day.

— Chen Feng

In succeeding in the airline industry, HNA Group had proved its tenacity in a heavily state- controlled environment. Its seat share of the Chinese domestic market grew from 3% in 1993 to around 15% in 2013 (see Exhibit 5 for a graph of the Chinese domestic market share by seats in 2013). By 2015, its fleet included over 540 aircraft. This rapid development came in three major phases. First, from 1993-2003, HNA focused on developing its core business: its flagship airline. Second, from 2003-2008, HNA diversified its business by expanding to a wide variety of related industries. Third, from 2008 on, HNA focused on international expansion.

Phase One: Private Fledgling in a State-Controlled Industry

The story of Hainan Airlines began with the designation of Hainan as a province and Special Economic Zone in 1988. (It had previously fallen under the jurisdiction of Guangdong province.) This change in governance coincided with a national push for the establishment of regional airlines to support trade and economic growth. Governing an island with low accessibility, Hainan officials were particularly interested in reducing transportation bottlenecks in and out of the province. The provincial government recruited Chen, who had a professional background in economics, strategy, and aviation, from a position in China’s Civil Aviation Administration to lead the province’s airline development. He was joined in 1990 by Wang Jian, a former co-worker at the Civil Aviation Administration and expert in civil aviation management, international negotiations and foreign economic relations. Together, they formed the core team of the newly founded airline. Wang eventually served as the HNA Group Co-Chairman and Chairman of the Strategic Planning Preparation Committee.

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Wang’s role in the core entrepreneurial team demonstrated the importance of strategic planning in Chen’s organization. CEO Li noted, “From the beginning until now, among all the Chinese companies I know, HNA places the most emphasis on setting strategies for development.” The strategies they employed often differed from industry norms. As CEO Li recalled,

I came to HNA in January 1991, and in April or May of 1991 we had a meeting. At that meeting, two development strategies were put forward that still guide our work today. One was that we should use the stock market and stock issuance to solve HNA’s development capital needs, achieve integration of industrial-finance capital, and build a modern corporate management system… [Second], we realized that in the future we wanted HNA to be an international airline company, so we had to use [large, long haul] aircraft from the beginning.

Following the first strategy, HNA was established in 1993 not as a purely state-owned enterprise, but rather as a joint venture between the Hainan provincial government and private interests led by Chen and Wang. Li, who was among the first 30 employees of HNA along with current President Tan Xiangdong, Vice-Chairman Chen Wenli, and Director Li Qing, attributed much of HNA’s success to this hybrid ownership model, which allowed HNA to avoid the traditional pitfalls of either state- owned enterprises or family-owned businesses. HNA was to be a private-public enterprise that maintained a high-touch relationship with the government. Government involvement was a necessity, as the Chinese airline industry at that time was characterized by high levels of government control over airplane purchasing and route allotment.

Second, HNA focused on large aircraft—an unusual approach in the industry. Vice-Chairman Chen Wenli explained that most other airline companies started by operating regional aircraft, and then began to operate mainline aircraft only after accumulating experience, money, and flight routes. HNA thus bucked the industry-accepted accumulation-of-experience-based growth trajectory, and also rejected conventional practices in choosing aircraft. Many Chinese airlines at that time purchased Russian-manufactured Tupolev airplanes, which were already banned from North America and Europe due to their violation of noise restrictions. Through communication, negotiation, and political maneuvering, HNA was able to convince its government partners from the beginning to purchase only Boeing airplanes that would serve both their immediate needs as well as their long-term strategy.

Outfitted with this corporate structure and quality airplanes, HNA still faced a market dominated by the “Big Three”: Air China, based in Beijing; China Eastern Airlines, based in Shanghai; and China Southern Airlines, based in Guangzhou. These airlines, each fully state-owned, enjoyed privileges in the government’s allocation of routes and planes. They also had stronger brand recognition than the start-up airline from Hainan. Therefore, Wang noted, “HNA needed to use its excellent managerial skills and notable innovative capabilities to stand out from competitors. Only then would it be able to establish its own role in the Chinese aviation market and become a famous airline in China, the region, and the world.” HNA first focused on three key priorities. As General Manager of Strategy and Development Miao Weisheng noted, “In this phase, we just sought survival. Internally, we decided to focus on safety, service…and building our brand. We quickly became successful in building our brand. Our service, especially, was rated very highly. It’s still true now.”

HNA’s quest for survival was boosted by the prestige and the financial flexibility garnered when it sold shares worth US $25 million to American Aviation, owned by George Soros’ Quantum Fund in 1995.1 While HNA struggled for much of its first decade, in 1997 it sold 71 million B-shares on the Shanghai stock exchange, followed by a further sale of 205 million A-shares in 1999.2

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Phase Two: Hedging against Future Crisis

First, we refined our core products. Second, we sold off assets to increase liquidity. Third, in management structures, we kept emphasizing culture. . . . Every time a global crisis hit in China, we saw it coming and were able to prepare in advance.

— Chen Feng

If a company wants to transform into something bigger and stronger, it must develop from tightly-knit to scattered, from passive to active. It must maintain a balance between cohesion and diversification, achieving ‘one spirit, different bodies.’

— Wang Jian

Just as Hainan Airlines completed its foundation for development, it was hit by three major external crises. In 1997, the Asian financial crisis upset the economies of many of China’s neighbors. Although China emerged from the crisis largely unscathed, the experience raised the specter of financial crisis and currency devaluation in China. In 2001, the September 11th attacks on the United States changed the global airline industry overnight. In the absence of passenger demand, China’s Big Three airlines brought many of their large planes back from international routes to fly domestic routes, increasing industry supply within China. Finally, the SARS crisis in 2003 grounded planes in Beijing for weeks. The Big Three airlines received an infusion of funding from the government to get them through the downturn; HNA, however, was left to weather the storm alone.

During these tumultuous years, HNA came to realize that in order to protect itself from risk and remain competitive in a heavily state-dominated industry, it needed to diversify. It therefore chose to grow by expanding into industries with less state control. This also allowed HNA to take greater advantage of Hainan’s booming tourism industry. HNA gradually established a presence in closely related industries in which it could leverage its existing expertise, through a strategy it called the “one body, two wings” policy. HNA also created a more complex corporate structure, officially establishing HNA Holding Limited (later renamed HNA Group) in January 2000. That year, HNA laid the foundation for HNA Holding by acquiring Haikou’s Meilan Airport. For HNA Tourism, it established the HNA Hotel Group to run two hotels in Haikou. HNA Tourism subsequently expanded the number of hotels it owned, and also moved into tour companies, corporate air travel, and car rental. HNA Group also identified a hole in the aircraft leasing market. Miao noted, “Leasing can be more profitable than building airplanes or operating them. But there was no plane leasing company in China.” HNA Capital was established to fill this gap, eventually expanding to ship and shipping container leasing as well.

Phase Three: International Expansion

International companies can’t get into domestic capital markets, and Chinese companies can’t get into foreign capital markets. The mismatch of these markets was an opportunity for HNA.

— Chen Feng

HNA leadership valued the analysis of leading economic indicators. By early 2007, they sensed an oncoming crisis in global financial markets. In analyzing their various businesses for strengths and weaknesses, the leadership team identified their logistics business as being most at risk. Chen, Wang, and other leaders set about carrying out their strategy of “Guan ting bin zhuan [close, suspend, merge, pivot].” Businesses that had yet to establish steady cash flows or were operating at a deficit were closed (guan). Those that were still quite weak would have operations temporarily suspended (ting). Some businesses would be merged with others (bin), while some would pivot to face other markets (zhuan).

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Using this four-pronged approach to consolidating assets, HNA ultimately adjusted and optimized a set of companies.

Because of this early consolidation and China’s relatively early recovery from the 2008 financial crisis, HNA was fairly liquid and faced a global buyers’ market of cheaply priced assets. Thus HNA entered its third phase of development: internationalization. In 2009, HNA leadership believed that the market had reached its nadir and began to purchase assets in related industries around the world. In order to better manage its burgeoning international operations, HNA also set up an international headquarters in Hong Kong responsible for international mergers and acquisitions across all five of its industry groups. (See Exhibit 6 for a diagram of the HNA industry group structure in 2015, and Exhibit 7 for a summary of international acquisitions from 2006-2015.) Wang reflected on the choice of Hong Kong as a new international base:

Hong Kong is the strategic stronghold from which we will display our new iteration of the HNA spirit. Globalization first requires deep roots in order to flourish. As HNA globalizes, it builds upon the roots of the Chinese people. Hong Kong and Mainland China come from the same roots, the same race. This is something that no other place can provide us. Hong Kong is an international shipping center, an Asian financial center, and a place where Western and Chinese culture have mixed. Hong Kong was the best choice from which to build a bridge between HNA and the world.

Building a Global Portfolio International acquisitions were a strategic way for Hainan Airlines to gain access to more flight routes while bypassing the most cumbersome Chinese bureaucratic controls. With an eye on key markets for Chinese tourists, HNA acquired a 48% share in Aigle Azur, France’s second largest airline, in 2012. Later that same year Hainan Airlines, together with Ghanian public sector partners, established Africa World Airlines based in Accra.

Besides passenger travel, HNA Aviation expanded its airplane maintenance and airline employee training businesses abroad as well, by acquiring myTECHNIC, a Turkish aircraft maintenance company in 2010. It acquired ACT, a Turkish cargo airline in 2011, and gained an 80% share in the International Aviation College of Australia in 2013. These acquisitions expanded the overall international assets of HNA Aviation to US $4 billion. In 2015, HNA Aviation fully acquired Swissport, the world’s largest ground and cargo handling company, the largest overseas acquisition by a Chinese airline company in recent years.

Other industry units in the HNA Group besides HNA Aviation ventured internationally as well. A key expansion for the HNA Group was the 2011 acquisition of SEACO, then the world’s 5th largest container leasing company. Not only did it fit in well with HNA’s existing industrial chain, it also had high annual revenue and profit. Three years later, this acquisition became even more valuable when SEACO acquired Cronos. Both companies became part of the HNA-owned Bohai Leasing Company, which became the largest container leasing company in the world. Other companies under the HNA Group internationalized as well; for example, HNA Tourism became the largest shareholder in the Spanish NH Hotel Group and acquired a 15% interest in Red Lion Hotels, opening the door to the North American hotel business. In 2015, HNA Holdings purchased the iconic 30 South Colonnade Street building in London, headquarters of Thomson Reuters.

Strategy President Tan explained that HNA’s international merger and acquisition spree incorporated several strategies. First, HNA focused on retaining local talent in its new subsidiaries. When HNA acquired SEACO, for example, the entire senior level management team was retained. “We believe that they are excellent staff,” Chen recalled. When SEACO’s CEO retired, HNA promoted SEACO’s original CFO to the top position. Later, when SEACO acquired Cronos, HNA made sure that

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SEACO followed this same strategy, retaining the entire management team. Chen would “not let them reduce people to reduce cost, but rather focused on increasing business in order to grow.”

In addition to staff retention, HNA focused on communication. To improve communication, HNA would send a management member from headquarters to participate in company management, albeit within the original management structure. Managers from the acquired company would be invited to HNA headquarters in China for meetings and orientation. As it gained experience with mergers, HNA also improved its internal communication, promoting better cooperation and a smoother transition between the merger team and the operations team.

Increased emphasis on communication was key to bridging cultural divides during the acquisition process. Deputy General Manager of International Affairs and Investment of Hainan Aviation Xiao Fei noted, “The difference between Chinese and European peoples’ culture and values is quite big. We see problems and think about them differently. Consequently, it is easy to create many misunderstandings. Therefore, we really care a lot about increasing communication and exchange.” HNA employees adapted some of their practices to fit the expectations of their global partners. For example, Chinese employees of the same company typically shared rooms during business travel, which confused HNA’s French partners. HNA employees began to live in separate rooms during their business trips to France, acquiescing to the cultural norms of their foreign partners.

A third element of HNA’s strategy was the promotion of its corporate culture within its new acquisitions. “When we grow,” Chen noted, “We also integrate our culture into new acquisitions. For example, after we acquired NH Hotels, the Spanish hotel company, I went over and lectured to them about HNA’s history and culture. After I finished speaking, all 300 people stood up and repeated the HNA Ten Commandments.” (See Exhibit 8 for the Ten Commandments in official English translation and Chinese.) At each newly acquired or invested company, Chen repeated this performance, directly introducing new employees and affiliates to the HNA corporate culture.

HNA also began to focus on bringing its internal practices up to international standards. Hainan Airlines became the first Chinese airline to pass ISO9000 and ISO9002 quality certifications.d The group also looked toward international best practices in management to bolster its own systems, incorporating Six Sigma training and the EVA management practices into its operations.

Similarly, Hainan Airlines emphasized international standards of service to compete with other highly regarded Asian and global airlines. Flight attendants went through a host of preparations for increasingly globalized service; key skills like spoken English ability were tied to salary levels and language skills played an increasingly important role in hiring decisions for cabin staff. The cabin service department had a team dedicated to researching international best practices in customer service as well as food and beverage offerings. (See Exhibit 9 for a sample food and beverage menu from Hainan Airlines’ Boston-Shanghai business class service.) The airline also used feedback from international evaluators like Skytrax as well as regular exchange with airlines from other countries to strengthen its service and product offerings.

Maintaining Original Strengths During all of this expansion, HNA remained true to its three original strategic goals: safety, service, and brand building. HNA kept abreast of the latest developments in safety technology, and tried to be the first-adopter of new technology in China, often

d The ISO was an international, independent organization that developed quality standards for international use. The ISO 9000- series standards were comprised of standards for quality management systems broadly applicable across different industries. Certification implies that a company has demonstrated its ability to consistently meet customer demands and abide by regulatory standards.

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at great expense. HNA also established its own training academies for pilots and airplane staff as well as its own airplane maintenance facilities to ensure safety and customer satisfaction throughout their Hainan airlines experience. From 2011 to 2013, Hainan Airlines customers reported satisfaction ratings of 84%. The airline also reported a 100% resolution rate of customer complaints. In 2015, the German professional publication Aero International ranked Hainan Airlines as the eighth safest airline in the world, and the safest airline in Mainland China.

Building the brand of the upstart private airline had been a longer process, but was starting to demonstrate results as well. In 2015, Hainan Airlines was ranked as the 59th most valuable brand in China by BrandZ. Although this was still significantly lower than the Big Three (Air China ranked at 19, China Eastern at 28, and China Southern at 34), its 2015 results represented the highest growth in brand value of the four airlines: 11%.3

A Diversified, International Conglomerate Overall, the HNA Group was realizing the fruits of twenty years of strategic growth. Chen noted that “First, we created a world-class airline. We raised the level of airline companies in China to the highest international standard…. Second, we reached the level of a world-class company.” In 2014, HNA group revenue reached 160 billion RMB, representing a compound annual growth rate (CAGR) of 38% since its establishment in 1993. In the same period, its assets had grown close to 500 billion, with a CAGR of 33%. As HNA expanded, it took responsibility to ensure that all of its investments abided by its “Five Do Not Invests” policy:

1. Do not take on projects that do not fit with the strategic development direction of HNA Group;

2. Do not take on projects that do not have positive cash flow income;

3. Do not take on projects that do not have mature financing plans;

4. Do not take on projects that do not fit within the industry groups of the company;

5. Do not take on projects that cannot scale.

These policies had served the expansion of HNA Group well; by 2015, it was comprised of 269 entities, including 10 listed companies and 28 foreign companies located in 11 countries on five continents. Of its 170,000 employees, 70,000 were outside the Chinese mainland. Its international businesses accounted for 15% of total HNA Group assets and 24% of its gross income. Its flagship aviation group operated 540 planes on 680 flight routes. HNA Holdings, the group’s essential industries investment arm, managed 9 airports and properties in over 40 cities across China. HNA Tourism operated 151 tourism agencies serving Asia, Europe, and North America, and owned controlling shares in 443 hotels in over 30 cities around the world. HNA Capital offered a wide variety of services from insurance to banking and owned Bohai leasing, the world’s largest container leasing business. HNA Logistics controlled over 40 ships, including bulk carriers, oil tankers, and container vessels with annual shipping capacities of 18 million tons, 7 million tons, and 220,000 twenty-foot equivalent units, respectively. Jinhai Heavy Industry Company, an affiliated enterprise of HNA Logistics Group, was one of ten largest shipbuilding enterprises in China and one of the top ten in the world, in terms of orders in hand.

While such rapid expansion might appear risky, Chen reflected, “Where on this earth is there not risk? There is risk everywhere. It just depends on your destiny. If your luck is good, then you will overcome the risks.” First and foremost in Chen’s efforts to improve the luck of his company was his dedication to HNA’s unique and complex corporate culture.

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Corporate Culture

Whatever we wanted to do, we have succeeded in doing. Why do we have such good luck? It’s not because of divine intervention. God should be equal to all of us. This happened because of our kindness and our work for the common good. If businesspeople are kind and caring, they will receive support from all sides. We accumulate returns and contribute to society, creating a bigger return. This corporate culture has been communicated to employees at all levels through our training. Our 100,000 employees all have the same mindset: creating a better world for humankind and building world peace.

— Chen Feng

Only when a company is aligned with national interest, the public good, and the interests of employees, can it build the foundations of an unfailing, 100-year company.

— Wang Jian

Chen attributed much of HNA’s success to its corporate culture, which he had developed over the course of twenty years. The corporate culture combined ancient Chinese philosophy and Buddhist ideals with Chen’s own personal touch: “simple and complicated, obvious and profound.” As Chen described,

When I was founding the company, I thought: What method could we use to bind everyone together? Should we give money? Well, then if we run out of money we will be in trouble because no one will work for us. Will it be okay to rely on a system? No, Chinese people are too clever, they can always get around systems…We need culture, and respect for culture and moral development. So we need all of these things: money, a system, and a company culture in order to succeed.

Over time, Chen and his team developed a corporate culture that Chen himself played a large role in installing and maintaining across the growing company. Chen personally attended the orientations of all new employees, lecturing on the history of HNA and its corporate culture and values. Even as HNA spread its operations across the globe, Chen still attended to this duty. Wang reflected, “A person needs a spirit, a race needs a spirit, and a company also needs a spirit. This is the foundation from which HNA has established our corporate culture. We rise up to a spiritual perspective to think about building our corporate culture.” HNA employees from Chen and Wang down to recent hires praised and identified with HNA culture. Many longtime employees of HNA attributed their loyalty to the company to their identification with its culture and values.


The essence of HNA’s philosophy is love. The culture of HNA avows a spirit of love and devotion. The core of this love and devotion is the Buddhist concept of ‘non-self’ and altruism.

— Wang Jian

In its early stages of development, HNA focused on the core values of cohesion, dedication, and rapid development. These three values inspired the six core spirits of HNA’s work: (1) focusing on present conditions while also considering the broader context; (2) acting in support of others in harmonious cooperation; (3) contributing selflessly and undertaking tasks despite criticism; (4) working hard to economize and act entrepreneurially; (5) working hard in a honest, conscientious, and responsible manner; (6) committing one’s energy to the collective fate of the company. The three core values also required employees to abide by “Three mores, two lesses, and two hearts”: more

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understanding and support, more warmth and caring, and more service for others; less doubt and misunderstanding, and fewer quarrels; and using compassionate and understanding hearts to solve problems in the workplace and in life.

HNA continued to clarify and strengthen its cultural values as it grew as an organization, and in 2010, put forward its current corporate culture guiding values, the “four commons”: common ideal, common beliefs, common striving, and common philosophy. The common ideal of HNA was to “benefit the prosperity of humankind and to create world peace.” The common beliefs of HNA were sincerity, conscience, beauty, and love. The common striving entailed striving for public recognition, public participation, public achievement, and public sharing. The common philosophy was one governed by integrity, performance, and innovation. The four commons linked Buddhist and traditional Chinese moral values with business standards. Chen explained how this philosophy related to business:

We need to ask the question: what kind of companies does mankind need? What kind of business? How can we overcome the shortcomings of business and make the most of its strong suits? As it has developed, HNA has constantly explored how to build a new kind of civilization for mankind. A company has to make money. If it doesn’t, then it’s a charity or it disappears. But while you are making money, you should not damage society, public goods, and the wellbeing of others in order to make this profit. One should not forget moral principles at the sight of profits. This is the culture of China business ethics.

The “four commons” colored the experience of every HNA employee. Front-end staff members, such as the flight attendants who trained at HNA Group’s Sanya Aviation and Tourism College, were steeped in the corporate culture throughout their education. Senior level managers all the way up to Chen and the Board made sure that the company ethos guided their work, even on major decisions such as how to implement mergers. For example, in 2001, when Hainan Airlines merged with Xinhua Airlines, HNA’s human resource policy ensured that Xinhua employees received the same treatment as HNA employees and neither had their titles lowered nor had any cut in compensation. “You can’t do things like they do on America’s Wall Street,” Chen said. “We have an ethical bottom line, and rules for business.”

Employees at all levels were able to recite the “four commons” as well as the HNA “Ten Commandments.” These ten phrases have been translated into the local languages of the countries in which HNA operates, including English, Turkish, Spanish, and French. As employees progressed to higher levels within the company, they received more training in the corporate culture. Training helped to reinforce the theoretical and systematic underpinnings on HNA’s operational strategy. The theoretical corporate culture influenced management systems and techniques that also drew on global best practices like EVA and Six Sigma. HNA Group attributed much of its success to this comprehensive strategy that used both ideas and systems to govern and nurture the business interactions and personal development of employees.

Chen was confident that the culture of HNA resonated equally well with employees of all nationalities, despite its roots in Chinese philosophy. Xiao Fei noted, “We have done a lot of work on cultural integration . . . we look for the common elements. Our company wants to do good things for society, for economic development. Everyone can agree on this! We can work from this as a starting point.” Xiao further added that despite the comprehensive nature of HNA’s culture, they were flexible in its implementation abroad. “Much of the content is from traditional Chinese culture. We won’t make everyone accept all of this. We just pick out the part of it that is related to economic and social development, to humankind. The humanist parts relate to many people. We won’t require [foreign employees] to accept it 100%. We want cultural integration, not cultural conquering.”

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Outward-facing HNA’s elaborate corporate culture promoted involvement of the company and its employees in society at large. Corporate social responsibility (CSR) projects were an important part of HNA’s work, and the nature of its CSR projects had evolved in parallel with the company’s three phases of growth. From 1993 to around 2003, HNA’s CSR work focused on contributing to its local environs, building schools and providing disaster relief in Hainan province.

From 2003 to 2010, as HNA began to diversify, its CSR projects diversified as well. Its projects ranged from engineering wells and building schools to launching an annual social innovation business competition. HNA also developed signature CSR initiatives that it could implement on a larger scale. One such project was the Brightness Action project, carried out in cooperation with Beijing Tongren Hospital and the Steering Group on National Blindness Prevention. These organizations partnered to provide treatment for cataract patients, first across China and then around the world.

As HNA group began to internationalize, so too did its CSR efforts. The Brightness Action project began operations in Malawi, Zimbabwe, and Mozambique, predating HNA Group’s corporate expansion to the African continent. By 2015, the Brightness Action project had cured the cataracts of nearly 5,300 patients.

HNA expanded its natural disaster response efforts beyond China’s borders as well. When an earthquake of disastrous severity hit Nepal in 2015, many of its employees signed up to participate in HNA-organized disaster relief efforts. HNA cooperated with United Nations organizations, including UNICEF and UNESCO, on nutrition, education, and child protection programs in Asia and Africa.

HNA’s contributions to society were recognized both within China and internationally. HNA Group was awarded the “China Charity Prize,” the highest recognition of philanthropic work given by the Chinese Ministry of Civil Affairs four times. In 2012, it received the UN South-South Corporate Social Responsibility Award in recognition of its charity work in China and Africa. By 2015, HNA Group had spent a total of nearly US$140 million on its social responsibility projects.

In 2010, HNA established the Cihang Foundation with a donation of over US$3 million. The foundation continued HNA Group’s original focus on disaster relief, medical care, and education. The scope of the foundation’s work was further expanded when the HNA Group donated a 20% ownership stake to the Foundation, making it the largest shareholder in HNA Group. Nor was the foundation done growing; Chen explained, “The founders all signed a contract, saying that we are free to enjoy our money as we live, but upon death, we will give all of our money to the foundation. It will not be passed down or sold. . . . We are trying to develop a new concept of finance and fulfillment. Everything will be donated.” Chen saw this as one step toward his ultimate vision for HNA’s corporate culture. In the future, he wanted HNA to become “a creator and disseminator of a new era of commercial civilization,” that is, an economically and socially influential global conglomerate that evangelized the integration of social responsibility with profitmaking in global business.

Inward-facing HNA leadership believed that part of the company’s social responsibility was also to create a positive work and life environment for its employees. Many employees were highly satisfied with their work environment and opportunities for advancement. One employee, who had been with HNA for over 16 years, noted that in the early years there was some employee attrition by those that didn’t feel they fit in with the culture, but those who do stay “are eager to rise through the ranks, have a vision that includes helping society, and feel that they have a chance to succeed here” (see Exhibit 10 for statistics on employee satisfaction, retention, and benefits). Although satisfying, HNA was a demanding company for which to work; the corporate culture had nurtured a fast-paced,

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energetic work environment. Employees joked about the difference between “Hainan speed”—the leisurely pace of business-as-usual on the tropical island—and “HNA speed”—the pace of work that had supported the growth of HNA from local airline to international conglomerate in 20 years.

The leaders also cared about employees’ quality of life. When housing prices on Hainan began to rise rapidly in the early 21st century, many lower-level HNA employees such as service staff in HNA hotels were priced out of the housing market. HNA responded by building “HNA Town”, an apartment complex of 15,000 homes in Haikou, which were sold to employees at cost (less than 50% of the market price). This wildly successful initiative was repeated in other cities with large numbers of HNA employees. Chen noted that this way, “Every employee is able to feel the benefit of the company’s development.”

Still, Li noted that HNA’s reputation for socially-responsible excellence had yet to spread beyond China’s borders. “In China, everyone already really respects HNA, and says that HNA has very good service and very good safety. HNA has also done a lot of charity and social projects, so people think that HNA is a company that cares. I believe that after 2020, HNA will not only be respected like this by people domestically, but will have this kind of respect internationally by those who understand.” HNA leadership agreed that international respect would come when HNA achieved a stronger global corporate presence.

Competing at Home and Abroad

If a company doesn’t develop, it will die out. If a society doesn’t move forward, it will lag behind the rest of the world. HNA cannot and will not let the wheels of history cast us to the back. We must chase after history, and overtake the current of global development. Therefore, we need to carry out a transformation.

— Wang Jian

In its quest to build up as high a reputation globally as it enjoyed domestically, Hainan Airlines had to compete not only with the rapidly expanding domestic airline sector, but also entrenched global competitors.

Homegrown Competition

All along, HNA had faced stiff, state-supported competition, but still it had managed to thrive and expand its domestic market share. Even after the state-sponsored consolidation of provincial airlines in 2002 expanded the capacity of the Big Three, Hainan managed to stay afloat. By the time the state lifted what the Centre for Aviation called a “de facto moratorium on new airlines” in 2013, Hainan Airlines had already firmly established its high reputation.4 Between November 2013 and November 2014, plans were announced for 19 new airlines in China, including two low-cost carriers (see Exhibit 11 for a list of the airlines announced during this period). By July 2015, eight of these had actually launched, with one further airline expected to launch in the summer and the remaining ten still in planning phases.

This was not as sudden an increase in competition for HNA as it initially appeared. Of the 19 newly planned airlines, seven were at least partially owned by HNA. By increasing their partnerships with local governments in less-developed border areas of China, HNA was able to not only expand its domestic capacity, but also demonstrate its adherence to the national policy of “One Belt, One Road,” which called for stronger ties with China’s neighbors to the West and South.

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In facing this more complex market within China, HNA was bolstered by its high reputation among domestic consumers. Hainan Airlines was ranked as the best airline in China in the 2015 World Airline Awards compiled by Skytrax.5 In the 2014 Civil Aviation Passenger Service Evaluation (CAPSE)e, Hainan Airlines ranked second in passenger satisfaction and in-flight service after Xiamen Airlines.6

Growing capacity and strong reputation left Hainan Airlines well-positioned to take advantage of the burgeoning domestic tourism market. Boston Consulting Group (BCG) predicted that by 2020, Chinese customers would spend around $850 billion over the course of 2.5 billion trips.7 International travel was expected to account for over 100 million of those trips, with an estimated market value of nearly $250 billion.8

While HNA had proven adept at gaining footholds in the domestic market by focusing on second- and third-tier cities to differentiate from the Big Three, it still had to compete with the Big Three for international route allocation to serve the growing tourism needs of Chinese customers. Even while liberalizing the domestic market, the Chinese government retained tight control over international routes, preferring to allow only one Chinese carrier to fly each route. The Big Three each had priority on routes originating in their respective hubs, leaving HNA access to routes to second-tier cities, such as Boston, Seattle, and San Jose.9 HNA’s acquisition of Aigle Azur was one of its creative attempts to gain access to a main route (in this case, Beijing-Paris), by going through the first step of bureaucratic route approval in a foreign country (France) rather than in China. But for international flights, the Big Three were not the only competition.

International Rivals

Hainan Airlines’ strategy of differentiation through excellent service had worked on a domestic level, but internationally it faced much fiercer competition. Hainan Airlines’ achievement of the World Airline Awards’ ninth-place ranking for airline staff service in Asia was significant, as was its tenth- place ranking for cabin staff globally. Together, however, these rankings indicated that Hainan Airlines’ closest competitors for service excellence could almost all be found in its surrounding region. Other Asia-based airlines like Cathay Pacific, Singapore Airlines, and Japan Airlines had long histories of excellence and extensive lists of accolades for their customer service. Moreover, all airlines that ranked higher than Hainan Airlines for overall customer experience (HNA ranked tenth) as well as the Big Three were members of major international codeshare alliances.10 Hainan Airlines was not a member of one of these alliances, but was confident that its bi-lateral partnerships, such as the frequent flyer agreement it announced with Alaska Airlines in 2015, were more beneficial than a broad alliance.11

Articles praising HNA did so for its excellence compared to the Big Three and other Chinese airlines, not for excellence compared to a global or regional standard. One article praising the brand performance of Chinese airlines opened by quoting HBS student Alex Lim (MBA 2016) as describing a flight on Hainan Airlines as “definitely one of the better experiences I’ve had on a Chinese airline.”12 A travel reviewer in the Economist noted that he “would rather fly with Hainan than with its bigger publicly owned peers.”13 Still, in order to compete in Asia and the world, Hainan Airlines needed to be perceived on the same level as its highly-regarded regional peers (compare Hainan Airlines’ food and beverage service menu in Exhibit 9 with that of Cathay Pacific in Exhibit 12).

e Established in 2012, CAPSE was produced by the Civil Aviation Resource Net of China. CAPSE was based on over 66,000 passenger surveys given to passengers immediately after flight. The surveys asked passengers to rate their experience on a scale of 1 (poor) to 5 (excellent) in eight categories: inflight service, onboard announcements, inflight food, cabin appointment, inflight entertainment, service in abnormal circumstances, boarding service, and baggage service.

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Competing for more non-Chinese and particularly Western customers might require some changes to product offerings. BCG’s research showed that Chinese and Western customers had very different travel service preferences. For example, Chinese customers placed more value on services related to baggage—like hotel baggage delivery or higher weight allowances for checked luggage—and those that conferred a sense of exclusivity—like lounge access and priority airport lines.14 Hainan Airlines thus faced the challenge of retaining its high reputation amongst the growing number of Chinese travelers while also developing a menu of customer service and value-added options that would earn it a similarly high reputation among Western consumers with different tastes.

Conglomerate Competition

As a conglomerate, HNA Group was in a unique position in the international market. Other airlines, like Lufthansa, had expanded to a broader range of passenger aviation related services like cargo transport and onboard catering. The Icelandair Group went further and encompassed not just passenger airlines but also tourism businesses, leasing, and other services.15 However, none of these compared to the scope and scale of HNA Group’s diversification.

On the other hand, some of Hainan Airlines’ major competitors, like Cathay Pacific and Asiana, were owned by larger, heavily diversified conglomerates (the Swire Group16 owned 46% of Cathay Pacific, while South Korean chaebol Kumho Asiana Group owned a majority share of Asiana). HNA Group had been built out from the original platform of Hainan Airlines into a wide variety of related industries and were all governed by the same corporate culture and charismatic leader. In the global economy, HNA Group was a rare example of a large, diverse, international conglomerate that had grown out of commercial airline operations.

Towards “Prosperity for Mankind and World Peace”

Overall, our greatest obstacle is ourselves. We need to constantly improve ourselves, our culture, and make sure that our leaders are able to acclimate themselves to the requirements of future development and scale. Our culture, our honest values, our management model, our ability to drive things all depend on our own quality and self-improvement. Our business can grow as big as we envision it in our minds. We welcome international staff, not divided by country or skin color. We have an equal platform where everyone can work toward achieving their dreams, the betterment of mankind, and world peace.

— Chen Feng

We hope that HNA will become a great enterprise, an enterprise for the public, an enterprise that makes a greater contribution to our country and people. Only then, will we be able to develop HNA into a hundred-year company or a thousand-year company. When people struggle and work for their beliefs, they will release a torrent of limitless power. We struggle in order to achieve greatness for the Chinese people and prosperity and power of our country.

— Wang Jian

HNA had big goals for its future. In 2015, the HNA Group achieved a major corporate milestone when it was ranked #464 in the Global 500, reporting US $25.6 billion in revenue and assets of $80 billion. 17 HNA’s 20-year vision saw HNA transformed into a well-respected, world-renowned company that would use its power to promote its charitable mission and, as Chen often said, to “create a new era of commercial civilization.” The first phase of this vision would be implemented from 2015 to 2020. During this time, HNA planned to transform itself from a modern, comprehensive service company into an industrial and financial holding group, and grow more than eightfold, with an annual

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revenue of $190 billion to $240 billion and assets ranging from $800 billion to $1.6 trillion. At that point, HNA planned to be in the top 10 of the Global 500. In phase two, from 2020 to 2025, HNA would continue to operate its core businesses like Hainan Airlines, but would primarily focus on its investments as a financial holding group, and would quadruple in size, with revenue of over $800 billion and $5-6 trillion in assets, over 70% of which would be managed. In phase three, from 2025 to 2035, the group would continue to grow but would focus ever greater efforts on what Chen called its “social mission.” If, as Chen wished, HNA were to “create a new era” for global commerce, it would do so by promotion of the “Buddhist ideals of mercy, altruism, and wisdom.”

Chen believed that the HNA corporate culture would play a key role in achieving his vision for expansion. Indeed, the sense of loyalty and generosity fostered by its corporate culture had already helped HNA get through some tough times. In 2008, when HNA had first been struck by the global financial crisis, employees accepted salary cuts and some even offered to loan their savings to the company to increase liquidity. The culture had even started to extend to newly-acquired foreign companies, such as SEACO, which adopted HNA Group’s practice of retaining original top-level management in its acquisition of Cronos.

At the same time, there had been some limits to HNA’s success. Rapid internationalization also exposed HNA to geopolitical forces outside of China’s borders. When HNA Aviation had acquired a stake in Aigle Azur in order to apply for flight rights for a Paris-Beijing flight through the French bureaucracy, f conflict between Russia and France over unrest in the Ukraine kept Russia from approving France’s request for airspace for the flight. HNA was left with a stake in Aigle Azur, but was still blocked out of its target Paris route.

Global economic forces affected HNA as well. In 2007, in response to harbingers of economic downturn, the HNA Group Board had decided that HNA Logistics was the weakest company in the HNA Group portfolio and needed to contract as much and as quickly as possible. They asked the president of this company to sell off its 97 ships. As CEO Li recalled, “For ships that were rented, [we told him to] cut off the contract and return them early. We’ll pay whatever the fee is.” However, the president of HNA Logistics, who had a long professional history at a state-owned shipping company, disagreed with the HNA leadership’s assessment of the situation and did not act on these instructions. In six months, he sold off just one ship. With the global economy already crashing, HNA was unable to sell off or break rental contracts on any more of the ships as planned, and subsequently had to initiate a much more aggressive contraction plan.

This memory of the broken chain of command loomed as HNA pushed to create an ever larger global network. Of great concern to the company was how to promote the same type of employee and leadership loyalty to the company and its culture as HNA became more diffuse across multiple cultures and countries. This concern extended to the issue of corporate succession. Many members of the HNA Group Board of Directors, including Wang, Tan, Chen Wenli, Li, and Chen Feng himself, were nearing retirement age. Although HNA had been proactively preparing for this transition by promoting members of a younger generation to the Board, the top management team still wondered, would the next generation be able to lead as effectively and with as international a perspective as Chen Feng and this generation?

f Bilateral agreements between national governments (such as France and China) were used to ensure the rights of both countries’ airlines to fly routes connecting the countries. However, the Chinese government still maintained control over route allocation to Chinese airlines. Thus, by acquiring a French airline, HNA could gain the route allocation in France for the French airline, and then offer codeshare service through Hainan Airlines.

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Strength in leadership was especially critical to achieving HNA Group’s ambitious plans for further international expansion. By 2015, around 15% of its total assets came from companies based outside of China. Tan expected that international assets would rise to 40% by 2020, and Chen was already planning for a future in which HNA Group held 50% foreign assets. Chen and Wang also planned to combine this global corporate presence with a global social presence to promote respect for the HNA brand abroad.

At the core of the HNA Group’s brand was Hainan Airlines, which remained a key focus of Chen and Wang. They sat down with Li to discuss the rankings he had brought into Chen’s office. While rapidly expanding across industries and national borders, HNA faced the challenge of continuing to improve its core product—passenger flights on Hainan Airlines. Would Hainan Airlines be able to compete with the best airlines in Asia (and, therefore, in the world)? Meanwhile, would HNA Group’s corporate culture be able to support and remain relevant to its increasingly international empire? Would Chen’s cultural and strategic legacy thrive under the next generation of company leadership? Would HNA be able to achieve the lofty goals outlined in its 20-year vision?

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Exhibit 1 HNA Group as of February 2015

Source: Company documents.

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Exhibit 2 Rankings of Hainan Airlines in Recent World Airline Awards

Year Airline (World)

Cabin Staff (World)

Airline (Asia)

Airline Staff (Asia)

Airline (China)

Airline Staff (China)

2015 22 10 10 9 1 1

2014 19 10 9 10 1 1

2013 19 9 10 Not rankeda 1 1

2012 20 10 10 Not rankedb 1 1

2011 23 Not rankedb Not rankedb Not rankedb 1 1

Source: Compiled from Skytrax World Airline Awards, 2015, http://www.worldairlineawards.com/ accessed December 10, 2015.

a Only the top five airlines were reported.

b Only the top three airlines were reported.

Exhibit 3 2015 World Airline Award Results—Asia

Airline Alliance World

Ranking Asia

Ranking Singapore Airlines Star 2 1

Cathay Pacific oneworld 3 2

ANA All Nippon Airways Star 7 3

Garuda Indonesia Skyteam 8 4

EVA Air Star 9 5

Asiana Airlines Star 11 6

Dragonair oneworld affiliate 18 7

Thai Airways Star 19 8

Japan Airways oneworld 21 9

Hainan Airlines — 22 10

Source: Compiled from “Skytrax World Airline Awards, 2015,” http://www.worldairlineawards.com/ accessed December 10, 2015; “Star Alliance: Member Airlines,” http://www.staralliance.com/en/ accessed December 10, 2015; “One World: Member Airlines,” http://www.oneworld.com/ accessed December 10, 2015; “Sky Team Member Airlines,” http://www.skyteam.com/ accessed December 10, 2015.

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Exhibit 4 HNA 2015 Skytrax Ratings

Ratings by Cabin and Flight Length

Category First


Business (general/

long haul)

Business (short haul)

Economy (general/

long haul)

Economy (short haul)

Overall 4.5 5 5 4.5 4



Check-in service 4.5 4 – 4 –

Boarding 4.5 4 – 4 –

Arrival assistance 4.5 4.5 – 4 –

Transfer service and assistance 5 4.5 – 4.5 –

Arrival lounge facilities and staff service 4 4 – – –

Baggage delivery 5 4.5 – 4.5 –

Meet, greet & assist service 4.5 – – – –


Lounge comfort, ambience and natural daylight 4.5 4 – – –

Seat availability, comfort and privacy 4 4 – – –

Washroom and shower facilities 4 3.5 – – –

Cleanliness of lounge, washrooms/ showers 4 3.5 – – –

Hot and cold food options 4.5 3 – – –

Quality of lounge catering 4 3.5 – – –

Lounge WiFi and internet options 4 3.5 – – –

Staff enthusiasm and attitude 5 4 – – –

Staff efficiency, problem solving skills 4 4 – – –

Staff friendliness and service hospitality 4.5 4.5 – – –

Staff language skills 3.5 3 – – –



Seat comfort 4.5 4.5 4.5 4 4

Comfort items: duvet, pillows, turndown 5 5 5 4.5 –

Cleanliness of cabin, seats, panels 4.5 4.5 4.5 4.5 4.5

Washroom cleanliness and presentation 4.5 5 5 5 5

Inflight entertainment 4 4 4 4 3.5

Onboard WiFi and internet connectivity – – – – –

Quality of onboard catering 4.5 5 4.5 4.5 4

Dine-on-demand service – 4 – – –

Newspapers and magazines 3.5 4 3.5 3.5 3.5



Total cabin service efficiency 4.5 4.5 4.5 4.5 4.5

Enthusiasm and attitude to customers 5 5 5 5 5

Interaction with customers 4 4 3.5 4 4

Cabin presence and attention through flight 5 5 4.5 5 5

Friendliness and service hospitality 4.5 5 5 5 5

Responding to customer requests 5 4.5 4.5 5 4.5

Staff language skills 3.5 3.5 3.5 3.5 3.5

Quality consistency amongst staff 4.5 4.5 4.5 4.5 4.5

Source: Compiled from “Hainan Airlines 5-Star Airlines,” Skytrax Website, 2015, http://www.airlinequality.com/ratings/ hainan-airlines-star-rating/ accessed December 10, 2015.

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Exhibit 5 Chinese Domestic Air Travel Market by Seat Shares, 2013

Source: “15 New Passenger Airlines to Launch in China. Though Small in Size, They will Rattle the Status Quo,” CAPA Centre for Aviation, May 3, 2014, http://centreforaviation.com/analysis/15-new-passenger-airlines-to-launch-in-china- though-small-in-size-they-will-rattle-the-status-quo-165997, accessed August 7, 2015.

Note: Excludes carriers that fly under another carrier’s code, such as Dalian Airlines flying under Air China’s CA code.

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Exhibit 7 International Mergers and Acquisitions of HNA Group

Year Company HNA Group Country

2006 Hong Kong Airlines Limited Aviation Hong Kong

Hong Kong Express Airways Limited Aviation Hong Kong

ZhongJi International Shipping Logistics Hong Kong

2007 SA Sode Hotel Tourism Belgium

Hotel Carrefore de L’Europe(Edipras) Tourism Belgium

Hong Kong International Aviation Leasing Company Limited International Hong Kong

2009 Hong Kong Airlines Corporate Jet Management Limited Aviation Hong Kong

2010 Allco Aircraft Leasing/HKAC Capital Australia

SinOceanic Shipping Capital Norway

myTECHNIC Aviation Turkey

Nicklaus Club Monterey Property United States

GC Tankers Logistics Singapore

Hong Kong International Financial Services Property Hong Kong

2011 Hong Thai Travel Tourism Hong Kong

ACT Airlines/myCargo Aviation Turkey

SEACO Capital Singapore

1180 AOA Member LLC Property United States

2012 Africa World Airlines Aviation Ghana

Aigle Azur Airlines Aviation France

Waterscape Resort II, LLC /CASSA Hotel Tourism United States

Hosea International Ltd./One York Street Property Australia

2013 Arena International Aviation Aviation Australia

TIP Trailer Leasing Capital Netherland

NH Hotel Group Tourism Spain

HNA International Investment Property Hong Kong

2014 Cronos Capital United States

Hawker Pacific Tourism Hong Kong

2015 Comair Aviation South Africa

Red Lion Hotels Tourism United States

Swissport Holding Switzerland

Avolon Holdings Ltd. (announced but not closed) Capital Ireland

Hudson Boulevard Building (announced but not closed) Property United States

Source: Company documents.

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Exhibit 8 Official English Translation and Original Chinese of HNA Ten Commandments

English Simplified Chinese

Thrive might we on the strength of many; Harmony 团体以和睦为兴盛

resolved we are, through principles we advance. Perseverance 精进以持恒为准则

In good health we toast to habit; Healthy Diet 健康以慎食为良药

to forgiveness we reach in conflict. Forgiveness 诤仪以宽恕为旨要

Compassion reflects our character; Kindness and Respect 长幼以慈爱为进德

indolence we call the enemy of knowledge. Hard Work 学问以勤习为入门

The people we place on founded integrity; Sincerity 凡事以预立而不劳

to others we reason in humble modesty. Modesty 处众以谦恭为有礼

In all things we give vigilance to labors lost; Be Prepared 待人以至诚为基石

in caution received we find favorable cause. Cautious when Dealing with Issues 接物以谨慎为根本

Source: HNA Group Website 2015, http://www.hnagroup.com/en/corporation/our-values/core-values/index.html and company documents, accessed December 2015.

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Exhibit 10 Employee Experience Statistics

Category 2011 2012 2013

Number of employees 115,019 103,536 108,416

Employees under contract 100% 100% 100%

Employees in labor union 73% 88% 92%

Number of appeals resolved in employee appeal system 29 33 16

Female managers (as percentage of all management) 19.6% 18.9% 19.5%

Non-Han (as percentage of all employees) 5% 5.8% 5.9%

Number of disabled people employed 912 923 931

New instances of occupational diseases 0 0 0

Total instances of occupational diseases 0 0 0

Coverage of health records 100% 100% 100%

Employee satisfaction 79% — 70%

Employee retention rate 84.6% 80.77% 86.48%

Social insurance coverage rate 100% 100% 100%

Average annual salaried vacation days per capita 12.7 11.9 12.4

Number of places filled at employee trainings 185,400 674,200 886,900

RMB invested in employee trainings 577 million 645 million 714 million

People helped by Employee Mutual Help fund 137 166 181

RMB spent from Employee Mutual Help fund 1,903,000 2,967,000 3,022,000

Source: Company documents.

Note: Data on employee engagement was collected annually by Hewitt Associates.

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Exhibit 11 Airline Industry Expansion, 2013–2015

Airline Launch Date Airline Shareholder Other Shareholders

Loong Airlines Dec-13 None Huixiang Investment & Commerce,

Delux Wealth Group, Asian Win

Investment, Caulfield Investment

Donghai Airlines Mar-14 None East Pacific Group

Qingdao Apr-14 Shandong Airlines

(Air China)

Qingdao Municipal Transport Development

Group, Nanshan Group

Ruili Airlines May-14 None Yunnan Jingcheng Group

Urumqi Aug-14 HNA Urumqi Urban Construction Investment

Fuzhou Airlines Oct-14 HNA Fuzhou State-owned Assets Investment

Holdings, Centruy Golden Resources

Group, Ningbo Ruitong Network


Jiu Yuan LCC Jan-15 Juneyao Elion Resources Group, Macrolink Group

Beibu Gulf Airlines Feb-15 Tianjin Airlines (HNA) Guangxi Beibu Gulf Investment Group

Jiangxi Airlines Scheduled Oct-2015 Xiamen (China Southern) Jiangxi Aviation Investment

Hefei Airlines Not set Joy Air (China Eastern) Aviation Industry Corporation of China,

Hefei Municipal Government

Heilongjiang Airlines Not set HNA Heilongjiang Provincial Government

Jilin Airlines Not set TBA TBA

Qinghai Airlines Not set TBA TBA

Sutong Airlines Not set None Nantong Tongzhou Bay Aviation Industry

Yangtze River Express Not set HNA (Expanding to

passenger service)

China Airlines, Yang Ming Marine Transport

Corp, Wan Hai Lines, China Container

Express Lines

Chang’an Airlines Not Set HNA Originally independent, currently a part

of Grand China Air, will possibly be spun

out again

Guilin Airlines Not Set HNA Guilin Municipal Government

<Unnamed> Not Set Okay Airways Heilongjiang Municipal Government, TBA

<Unnamed LCC> Not Set Possibly Peach Airways First Eastern Investment, Zhengzhou City

Manli Transportation Group

Source: “China’s 19 New Passenger Airlines will be Mostly Full Service and along the East Coast,” CAPA Centre for Aviation, November 19, 2014, http://centreforaviation.com/analysis/chinas-19-new-passenger-airlines-will-be-mostly-full- service-and-along-the-east-coast-196677, accessed August 7, 2015; HNA Group Website 2015, http://www.hnagroup.com/en/business/hna-airlines/aviation-introduction/yangzi-express.html.

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1 “Soros Long on China’s Unlisted companies,” China Stakes, October 26, 2009, http://www.chinastakes.com/2009/6/soros- long-on-chinas-unlisted-companies.html, accessed August 7, 2015.

2 Ibid.

3 Nicole Sy, “China Brands Special Part 1: Airlines-Premiumization and Trust,” ChinaTravelNews, May 26, 2015, http://www.chinatravelnews.com/article/92432, accessed August 7, 2015.

4 “China’s 19 New Passenger Airlines will be Mostly Full Service and along the East Coast,” CAPA Centre for Aviation, November 19, 2014, http://centreforaviation.com/analysis/chinas-19-new-passenger-airlines-will-be-mostly-full-service-and- along-the-east-coast-196677, accessed August 7, 2015.

5 “2015 World Airlines Awards,” http://www.worldairlineawards.com/Awards/best_airlines_by_world_region.html, accessed August 7, 2015.

6 Lena Ge, “China’s Top 5 Airlines Unveiled,” World Civil Aviation Resource Net, April 23, 2015, http://www.wcarn.com/news/43/43578.html, accessed August 7, 2015.

7 Tom von Oertzen, Monica Wegner, Dinesh Khanna, and Frank Budde, “How China’s Emerging Airlines will Change the Industry,” BCG Perspectives, June 14, 2012, https://www.bcgperspectives.com/content/articles/transportation_travel_tourism_consumer_insight_big_squeeze_how_chi nas_emerging_airlines_will_change_industry/, accessed August 7, 2015.

8 Vincent Lui, Youchi Kuo, Justin Fung, Waldemar Jap, and Hubert Hsu, “Taking Off: Travel and Tourism in China and Beyond,” (Boston: Boston Consulting Group, 2011) accessed August 2015, https://www.bcgperspectives.com/Images/BCG_Taking_Off_Mar_2011_tcm80-74525.pdf, p. 6

9 Joanne Chiu, “Hainan Air Elbows Its Way into China’s Skies,” Wall Street Journal, December 4, 2014, http://www.wsj.com/articles/hainan-air-elbows-its-way-into-chinas-skies-1417729580, accessed August 7, 2015.

10 “Hainan Airlines Order for 30 787-9s Underscores Trans-Pac Growth. Partnership Will Need to Increase,” CAPA Centre for Aviation, March 30, 2015, http://centreforaviation.com/analysis/hainan-airlines-order-for-30-787-9s-underscores-trans-pac- growth-partnerships-will-need-to-increase-216151, accessed August 7, 2015.

11 Steve Wilhelm, “Alaska Airlines Partners with Hainan Airlines, Reduces Reliance on Delta for Asia Flights,” Puget Sound Business Journal, July 22, 2015, http://www.bizjournals.com/seattle/news/2015/07/22/alaska-airlines-partners-with-hainan- airlines.html, accessed on August 7, 2015.

12 Nicole Sy, “China Brands Special Part 1: Airlines-Premiumization and Trust,” ChinaTravelNews, May 26, 2015, http://www.chinatravelnews.com/article/92432, accessed August 7, 2015.

13 “Hainan Airlines: A Four-Star Chinese Carrier,” The Economist, September 27, 2010, http://www.economist.com/blogs/gulliver/2010/09/hainan_airlines, accessed August 7, 2015.

14 Lui et al.

15 Icelandair website, http://www.icelandairgroup.com/our-company/, accessed August 7, 2015.

16 Swire Company website, http://www.swire.com/en/about-us/organisational-chart, accessed August 7, 2015.

17 ”464: HNA Group,” Fortune Global 500, July 2015, http://fortune.com/global500/hna-group-464/, accessed August 7, 2015.

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