Story ID: 311
Chinese Companies Dominate Asia-Pac Aircraft Leasing Space
By: Peter Shaw-Smith
Caption: Chinese lessors have learned the trade enthusiastically and show strong international ambition.
Word Count: 931
Covid-19 has tested the mettle of all aircraft lessors and it will be some time before recovery emerges, especially in the Asia-Pacific region, where pandemic-related closures have often been political in nature. Although Chinese lessors haven't escaped the pandemic's effects, those entering 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 top 30. 

Simon Wong, partner at law firm Stephenson Harwood in Hong Kong, told AIN that among Chinese lessors, CDB Aviation, Bank of Communications (BoComm) Financial Leasing, and a number of other Chinese lessors have become among the most active in the world. His client, ICBC Leasing, now ranks as the sixth-largest aircraft lessor in the world, after starting the business only 13 years ago.

“Among them, some are becoming really international," he said  "An obvious example is BOC Aviation, which has its leadership sitting in Singapore and is independently listed in Hong Kong. In fact, its parent bank provides for only about 10 percent of its financing needs.

“What they have in common is that they are subsidiaries of national state-owned banks in China. Whilst it isn't true that they receive cheap funding solely or mostly from their parent banks, the fact that they are either solely or majority-owned by banks with [strong] sovereign credit ratings means that their cost of funding in the domestic and international commercial loan and capital markets is relatively low.”

Wong considers the Chinese government's move to encourage the growth of aviation leasing as smart and necessary because it made little sense for overseas lessors and financial institutions to own or finance most of the country's rapidly growing fleet. “To Chinese lessors’ credit, they have been learning the trade enthusiastically and quickly and are not content to serve PRC airlines only but have strong international ambition,” he said. “In many cases, they hire talent internationally.”

Today, most Chinese lessors have established a significant presence in Dublin, while also maintaining legal entities in China, Hong Kong, Singapore, or elsewhere. KPMG Ireland Aviation Advisory partner Kieran O'Brien cited Cirium data to estimate Chinese lessors’ current assets under management. ICBC Leasing carries 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 that the pandemic has affected recent performance. “Asia-Pacific aircraft lessors’ performance continued to be weighed down by the pandemic in 2021,” Katie Chen, a Taiwan-based director at Fitch Ratings, told AIN. “Some of them reported weaker earnings in the first half due to either declining revenue or larger impairment loss compared to the first half of 2020. Asset growth also [remained] weak for aircraft lessors in the first half of 2021.”

O’Brien told AIN the sector had suffered from a cash flow perspective, but significant government intervention meant few airlines failed in the last 18 months. “There's no question that margins are down, and cash reserves are certainly under more pressure,” he said.

“Most of the well-run lessors went out and shored up liquidity very quickly into the pandemic. They've also been pretty good in terms of restructuring. Certainly, we've seen that Western and Chinese lessors have worked with airlines, and we've been part of that process. They've made sure that they've thought about deferrals and related actions or measures. They have looked to keep the aircraft with the airline, but have done deals to keep some level of money coming in while not destroying the airline completely.”

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 8s. 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 aircraft on operating lease, including five via direct OEM orders, six via sale-leaseback, and three via portfolio acquisitions, which were leased to Aeroflot, American, Wizz, WestJet, United, and SAS,” CEO Patrick Hannigan told AIN.

More than 50 percent of CDB Aviation’s fleet operates with lease customers in Asia-Pacific, and he expects the region to remain a fundamental pillar of the business as it becomes the world’s biggest market for air travel. Over the past few 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 the decade of Asia in the leasing space, where a number of well-capitalized, highly experienced, highly capable leasing platforms were born and developed,” Hannigan said. “We’re the first Chinese-owned 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 corporate presence in Hong Kong to best serve that important market and region. At the same time, the global HQ of CDB Aviation is in Dublin and we also have a strong presence in the Americas.”

Discussing mergers and acquisitions in a recent online seminar, Aengus Kelly, CEO of AerCap, the world’s largest commercial aircraft owner, said he did not expect many more to take place. “I don't think it will be hugely widescale because many the owners of aircraft leasing businesses are large Chinese financial institutions, and they're not in any great rush to sell,” he said.