News
China Aircraft Leasing Plans IPO
Tuesday 18th September 2012
HONG KONG—China Aircraft Leasing Co., the Hong Kong-based lessor partly owned by state-owned conglomerate China Everbright, 0165.HK -1.29%is planning an initial public offering in the city so it can buy more aircraft at a time when European banks are retreating from the business of leasing jets.
China Aircraft Leasing Chief Executive Mike Poon told Dow Jones Newswires in an interview that his company wants to have a fleet of 100 aircraft by 2015, from 16 currently, and an IPO will go toward funding that growth. He didn't elaborate on a time frame.
"We hope to become one of the world's major aircraft leasing companies by 2020," he said. "We're qualified for a listing in terms of profitability, but listing will depend on market conditions," he said. Hong Kong's stock exchange requires a three-year profit track-record for a company to list.
China Aircraft Leasing's total assets, of mainly narrow-body jets such as the Airbus A320, A321, as well as Boeing Co.'s 737-800s, are valued at 0 million, Mr. Poon said.
Chinese aircraft financing firms have been growing rapidly with rising demand for aircraft in China, even as the economy slows. These companies have taken on a bigger share of the market, as the traditional leading lenders of aircraft, European banks, pull back due to pressure to bolster their capital.
"Many of our competitors as well as other airlines have been retreating from the market…that has given us opportunities to secure aircraft assets at a quicker pace," Mr. Poon said.
Bank of China Ltd.'s 3988.HK -0.34%aircraft financial unit BOC Aviation has grown into one of the largest lessors in the region, with a total of about 188 aircraft under its ownership or management, while ICBC Financial Leasing Co., the finance leasing arm of Industrial & Commercial Bank of China, 1398.HK +0.45%as well as CDB Leasing Co., the financing arm of China Development Bank, have become big players in the industry.
In contrast, European banks have been exiting the business. Earlier this year, Royal Bank of Scotland RBS -1.92%PLC sold its aircraft leasing unit RBS Aviation Capital, one of the world's top five aircraft lessors, to a consortium led by Japan's Sumitomo Mitsui Financial Group 8316.TO -0.08%for .3 billion, as part of the U.K. bank's efforts to restore its financial health.
China Aircraft Leasing didn't disclose how much of its customer base is long-term, the kind of customers lessors prefer in a volatile market. "Aircraft leasing firms with a shorter duration of aircraft leasing contracts are more exposed to the volatility of trading in the aircraft market," said Jim Wong, an aviation analyst at Normura. He noted, however, that lessors exposed to China's aviation market would be less hit by the global economic downturn and the declines in global travel than overseas peers. Because China Aircraft Leasing isn't listed, brokerage analysts don't cover the company yet.
Mr. Poon said China Aircraft Leasing's plan is to secure a bigger market share in China, where it mainly leases its aircraft, before expanding into overseas markets by leasing to non-Chinese airlines from 2015 onward. He said China Aircraft Leasing is close to signing a deal with a major Chinese airline seeking to replace more than 10 of its aircraft, but didn't elaborate, and has agreements to buy an additional 50 aircraft.
China Aircraft Leasing's major clients are mainland Chinese carriers such as Air China Ltd., 601111.SH -2.07%China Southern Airlines Co., ZNH -1.96%Chengdu Airlines and Shandong Airlines 200152.SZ +0.61%. Late last year, the company placed an order for 20 C919 passenger jets produced by Commercial Aircraft Corp. of China Ltd., also known as Comac, and is in talks to buy more narrow-body and wide-body jets like Airbus 330s and Boeing 777s, Mr. Poon said.
Mr. Poon began the company in 2006, later inviting Chinese state-firms as shareholders. China Everbright's Hong Kong-listed unit, China Everbright Ltd., in 2011 bought a 44% stake in the company, while China Aerospace Investment Holdings Ltd., an aerospace-related investment company, owns 8%. Mr. Poon and his family hold the rest through an investment firm called Friedmann Pacific Asset Management Ltd.
China Aircraft Leasing currently has sufficient funding from the financial leasing arm of China Development Bank, Export-Import Bank of China, the policy bank that supports trade, and ICBC. But a listing, Mr. Poon said, could both raise funds and increase the company's financial transparency, paving way for possible acquisitions of other aircraft lessors in the future. Still, Mr. Poon said the Chinese state-owned banks tend to provide debt with longer tenor that matches the life of an aircraft—making for strong funding and lower interest costs than its peers. Because of this, China Aircraft Leasing's return on equity tends to be more than double that of the global industrial's average return on equity of about 10%, Mr. Poon said.
The Chinese aircraft lessor not only leases aircraft, it also provides sale-and-lease back services, allowing airlines to offload their debt by selling planes to a leasing firm, which then leases the aircraft back to the airline.