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Sijia Jiang

The rise of young Chinese aircraft lessors is starting to change the rules of the game in the trillion-dollar business in ways keenly felt by their Western counterparts, airlines and manufacturers alike.
Just as Bohai Leasing is completing a landmark deal to take over Irish aircraft lessor Avolon Holdings for US$2.6 billion, Awas, another Irish lessor, has attracted at least two Chinese bidders, ICBC Leasing and Avic Capital, in a new round of bidding, with market talk swirling that Bohai Leasing could be interested too.
CK Hutchison Holdings was interested in buying Awas in an earlier round of bidding last year.
Bohai Leasing declined to comment on market speculation, while Awas did not respond to requests for comment.
Sources said ICBC and Avic were interested in a full takeover of Awas, a top-10 player with about 200 planes and whose private equity owner Terra Firma and the Canadian Pension Plan Investment Board are seeking to exit.
This is Avic's second bid for Awas, which sold 90 young aircraft to Macquarie Group for US$4 billion in March.
Avic was also the last-minute bidder for Avolon that forced Bohai Leasing to raise its offer, people involved in the matter said.
Competition among Chinese leasing firms eager to acquire established Western lessors following the Avolon deal may drive up Awas' price, analysts say.
Chinese lessors are now racing to master the sophisticated trade of aircraft leasing beyond deal financing as they are faced with aircraft approaching the end of their first lease term.
Their quick growth in recent years had also spoilt their own clients and driven down lease rates, top industry executives said at the China air finance development summit in Tianjin last week.
"Chinese lessors are desperately courting aircraft management talent as many now have to deal with aircraft coming out of lease contracts for the first time, and a record number of new planes are about to be delivered into China," said industry veteran Johnny Lau, who runs his own consultancy, Astro Leasing.
Long Fei, a deputy director at China Development Bank, said: "In recent deals we see aircraft transaction prices are high, and lease rate factors have gone down visibly - from around 10 per cent before to 8 per cent. Also, terms have got a lot harsher for lessors, that is a big change."
Long said that with lessors gradually having to find second homes for their planes, "whether they could manage the residual value of their aircraft assets as expected is also going to affect loan risks".
Li Ling, a deputy general manager at Bocom Leasing, said Chinese lessors were moving beyond growing fleet size to growing asset value through trading aircraft portfolios. They were also diversifying their financial channels by tapping capital markets.
Chinese companies have toppled the dominance of Western lessors in China since they entered the market in 2007, with special incentives in pilot zones led by Tianjin fuelling their exponential growth.
"Chinese airlines now ask foreign lessors to do business with them through Chinese [special vehicles] so they save the withholding tax," Lau said. "That is how mainland lessors have changed the rules of the game for Western players."
Delivery of large aircraft orders made after 2011 by Chinese lessors and airlines will peak by 2018.
Potential aircraft oversupply in China meant start-up airlines would be able to lease planes at low prices, Lau said.
Steven Guo, a vice-president at DVB, said record high airline profits this year on low fuel costs, abundant liquidity brought about by quantitative easing measures in the United States and China, and expectations of an interest rate increase in the US all helped to lower financing costs.
However, a concentration of deliveries in emerging markets with high volatility and currency risks posed uncertainties for the global financial market, he said.


Emerging Chinese players bring changes to aircraft leasing industry

Chinese leasing firms are eagerly competing to acquire established Western players. Photo: Reuters

China's Bohai reveals international aircraft leasing ambition

Bohai Leasing's chief operating officer Ren Weidong says Chinese lessors will account for a larger share of the global market in future. Photo: Felix Wong

Aircraft leasing market attracting Asian investors, says industry veteran 

More large Asian investors are getting involved in the aircraft leasing  market, says Robert Martin of BOC Aviation. Photo: EPA 

Deal makes Bohai Leasing largest shareholder of Irish aircraft lessor Avolon

Container leasing accounted for 46 per cent of Bohai Leasing's  revenue last year. Photo: Reuters

Business

China Business

Use of special vehicles to conduct business sees Western rivals deal with new rules for the game


The rise of young Chinese aircraft lessors is starting to change the rules of the game in the trillion-dollar business in ways keenly felt by their Western counterparts, airlines and manufacturers alike.


Emerging Chinese players bring changes to aircraft leasing industry

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Use of special vehicles to conduct business sees Western rivals deal with new rules for the game

Use of special vehicles to conduct business sees Western rivals deal with new rules for the game