BOC Aviation to buy five planes from Air China in lease-back deal
Aircraft lessor BOC Aviation said on Monday it would purchase five new planes from Air China worth US$1.532 billion at list price and would lease them back to the carrier.
Asia’s largest aircraft lessor said the new planes encompass three Boeing B777-300ERs and two Airbus A330-300s. The aircraft are scheduled for delivery before year end.
“We are pleased to support Air China in its fleet growth and expansion plans in this transaction, which adds popular, in-demand aircraft on long-term leases to our portfolio,” said Robert Martin, chief executive officer of BOC Aviation. “This transaction also represents incremental capital expenditure in 2016, and we continue to focus on disciplined investing to grow our fleet in line with our current strategy.”
Victor Au, chief operating officer at Delta Asia Financial said it is common for carriers to sell their planes and then lease them back in order to cut their debt ratios.
“The strong US dollar will increase financial pressure on these Chinese carriers as they usually issued dollar bonds to buy news planes,” said Au. “These carriers may tend to sell the planes and rent them back to release their debt pressure.”
BOC Aviation, with the support of its ultimate parent Bank of China, likely has the necessary cash and the ambition to expand its fleet, Au said, noting that the airline group raised US$1.1 billion from its Hong Kong listing in June.
Tony Li, an analyst at China Galaxy International said in a recent report that BOC Aviation has the ability to gain “very low cost of funds independent of Bank of China, as the lessor has maintained a good credit rating and relationships with banks and investors across the globe.”
It is able to secure funding as low as 2 per cent in 2015, significantly lower than that of its peers.
“With the proceeds from its IPO, we believe the net addition will be higher in 2016 and 2017,” Li said in the report. “And we estimate about 30 to 40 aircraft per year.”
BOC Aviation has a fleet of 483 aircraft owned, managed or on order and its fleet was leased to 64 airlines worldwide in 31 countries as of the end of June.
BOC Aviation’s shares closed 0.25 per cent higher at HK$40 on Monday. The share is down 4.76 per from its offer price of $42.