China’s HNA Group is looking to sell one of its prized regional airlines to a state-owned competitor, as debt woes threaten the core operations of the indebted airline-to-finance conglomerate.

The sale would mark the first formal divestment of a core domestic aviation business, a step HNA executives had vowed the group would not take but highlights the challenge of handling debts of at least $78b accumulated during its rapid expansion.

The proposed divestment of a 60 per cent stake in Lucky Air, a regional carrier, to Shanghai-based China Eastern, the country’s second-largest airline, comes as HNA continues to shed assets. It plans to divest the remaining 40 per cent of Lucky Air to Yunnan Sasac, Yunnan’s state-owned asset regulator, according to former owners of the carrier who oppose the sale.