Chinese companies dominate the aircraft leasing space in Asia-Pacific

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Covid-19 has tested the mettle of all aircraft lessors and it will be some time before recovery emerges, particularly in the Asia-Pacific region, where pandemic-related shutdowns have often was political in nature. Although Chinese lessors have not escaped the effects of the pandemic, those that have entered the aircraft leasing market in the past decade or more now account for around three of the top 10 global players and eight of the 30 first.

Simon Wong, a partner at law firm Stephenson Harwood in Hong Kong, said AIN that among Chinese lessors, BOC Aviation, CDB Aviation, Bank of Communications (BoComm) Financial Leasing and a number of other Chinese lessors have become among the most active in the world. Its client, ICBC Leasing, is now the sixth largest aircraft lessor in the world, having started the business just 13 years ago.

“What they have in common is that they are branches of state-owned national banks in China,” he said. “While it is not true that they receive cheap funding only or mainly from their parent banks, the fact that they are only or majority owned by banks with [strong] sovereign credit ratings mean that their cost of funding in domestic and international commercial loan and capital markets is relatively low.

Wong considers the Chinese government’s decision to encourage the growth of aircraft leasing to be smart and necessary, as it made little sense for foreign lenders and financial institutions to own or finance most of the the country’s rapidly growing fleet. “To the Chinese lessors’ credit, they have learned the business with enthusiasm and speed and are not content to serve only PRC airlines, but have a strong international ambition,” he said. “In many cases, they’re hiring talent internationally.”

Today, most Chinese lessors have established a significant presence in Dublin, while maintaining legal entities in China, Hong Kong, Singapore or elsewhere. Kieran O’Brien, partner at KPMG Ireland Aviation Advisory, cited data from Cirium to estimate the current assets under management of Chinese lessors. ICBC Leasing has a portfolio worth $13 billion, BOC Aviation $14.5 billion, BoComm $7.5 billion, CDB $7.5 billion, AVIC International Leasing $6 billion and Chinese Aircraft Leasing Company $3.4 billion.

Despite the “business as usual” line, analysts say the pandemic has affected recent performance. “The performance of Asia-Pacific aircraft lessors continued to be weighed down by the pandemic in 2021,” said Katie Chen, director of Taiwan-based Fitch Ratings. AIN. “Some of them reported lower earnings in the first half due to either lower revenue or greater impairment compared to the first half of 2020. Asset growth has also [remained] low for aircraft lessors in the first half of 2021.”

O’Brien said AIN the sector had suffered from a cash flow perspective, but significant government intervention has caused few airlines to go bankrupt in the past 18 months. “There’s no question margins are down and cash reserves are definitely under more pressure,” he said.

“Most of the well-run lessors came out and built liquidity very quickly during the pandemic. They have also been quite good in terms of restructuring. Certainly, we have seen that Western and Chinese donors have worked with airlines, and we have been part of this process. They made sure that they had thought about postponements and related actions or measures. They sought to keep the plane with the airline, but made deals to keep some level of cash without completely destroying the airline.

CDB Aviation has an in-service fleet of 241 aircraft and 138 aircraft on order: 80 Airbus A320neo family aircraft and 58 Boeing 737 Max 8. During the first half of 2021, it added six new customers and signed new lease transactions for 31 aircraft with 11 customers. “We also acquired 14 operating lease aircraft, including five through direct OEM orders, six through sale-leaseback and three through portfolio acquisitions, which were leased to Aeroflot, American, Wizz, WestJet, United and SAS” , said CEO Patrick Hannigan. Recount AIN.

More than 50% of CDB Aviation’s fleet operates with rental customers in Asia-Pacific, and he expects the region to remain a fundamental pillar of the business as it becomes the world’s largest market for air Transport. In recent years, it has also managed to establish deep-rooted market presences in Europe, the Middle East, Africa and the Americas.

“I would say that the last ten years have really been Asia’s decade in rental, where a number of well-capitalized, very experienced and very successful rental platforms have been born and grown,” said Hanigan. “We are the first Chinese lessor to truly ‘go global’, with teams assigned to all key markets and a full-service aircraft leasing platform with a global footprint.

“As a Chinese-owned lessor, China is and will continue to be a key market for CDB Aviation, and we have a strong commercial presence in Hong Kong to better serve this important market and region. At the same time, CDB Aviation’s global headquarters are in Dublin and we also have a strong presence in the Americas.

Discussing mergers and acquisitions at a recent webinar, Aengus Kelly, CEO of AerCap, the world’s largest commercial aircraft owner, said he didn’t expect much more. “I don’t think it will be on a large scale because many aircraft leasing business owners are large Chinese financial institutions, and they’re in no rush to sell,” he said.

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