Jet-leasing firms on China's radar in chase for $228bn market
Published 05/02/2016 | 02:30
Fresh from taking on the world in financial services, China's cashed-up banks are targeting a bigger slice of the surging global aviation market, beefing up affiliates bent on supplying planes to airlines around the planet.
Chinese lenders have grown big in traditional business like investment banking and brokerage, flush with Beijing backing and cheap funding.
Now institutions are investing in operators that specialise in jet leasing, a newer financial service that was once the exclusive preserve of Western players.
Bank of China's BOC Aviation Pte arm is set to go public this year with an estimated $3bn listing, the industry's biggest. Four Chinese lessors - including BOC Aviation - are among the world's top 15 by fleet value in a $228bn industry, according to consultancy Flightglobal.
Western firms like AerCap Holdings and GE Capital Aviation Services still dominate a sector that underpins aviation - some 40pc of carriers' aircraft are leased to avoid the fixed costs of owning planes. But China, through its banks, is aiming to create its own global champions.
China's Bohai leasing company recently took over Irish-founded Avolon.
"The political drive is there for China to be part of the global economy," said Johnny Lau, who ran the aircraft leasing arms of Industrial and Commercial Bank of China and China Minsheng Banking Corporation before starting his own consultancy. Against a backdrop of oil prices falling to 12-year lows, at least temporarily reducing aircraft operating costs and boosting carriers' profitability hopes, the drive is already under way.
Though industry insiders say some of China's newer leasing operations may face growing pains in securing specialist expertise, Singapore-based BOC Aviation is different.
Now China's biggest lessor, and the world's sixth-biggest, with a fleet valued at more than $10bn, BOC Aviation was founded in 1993 and bought by Bank of China in 2006 from investors including Singapore Airlines. For China's banks, keen to grow abroad, the lure is in part predictable, dollar-denominated revenue streams.
Lessors are basically financing operations: planes are bought from makers like Boeing and Airbus in bulk and rented out to airlines - from full-service carriers to budget operators - keen to keep fleets flexible.
"It is an enviable position," said consultant Lau. "When (Chinese lessors) issue a bond backed by their parents with the bank's guarantee, there is no problem finding investors." Apart from Bank of China, units of ICBC and China Development Bank are among the top 15 leasing firms in the world.
Clients stretch across the industry: BOC Aviation, which declined to comment, leases to full-service Gulf carrier Emirates and US low-cost operator Southwest Airlines among others.
Ambitious leasing subsidiaries of China Construction Bank and Bank of Communications are among those ramping up after placing multi-billion dollar orders with Airbus and Boeing.
It's not all plain sailing. Chinese lessors can be hampered by a lack of management talent, experience and industry connections - ties which can smooth over everything from marketing a plane once a lease comes to an end, to lessening the impact of a client airline's bankruptcy.
"The technical expertise in terms of the aircraft, how to actually manage it when it comes to the end of the lease term is very, very important because that impacts the return," said Clarence Leung, leasing director at PwC. (Reuters)