Growth of the commercial aircraft leasing sector in China has mirrored the country’s spectacular economic development. No wonder, given forecasts that China will require close to 7,000 new aircraft in the next two decades. Read More » The same analysts believe that more than 40% of these new airplanes will be delivered into Mainland fleets under lease agreements.
There are an estimated 60 mainly domestic aircraft lessors operating in China with fleets as small as two or three aircraft, but they still want their share of the US$225 billion global leasing pie.
Their rivals include established BOC Aviation in Singapore, which is a 70% owned subsidiary of the Bank of China, and Dublin-based Avolon, recently acquired by China’s globally acquisitive HNA Group. Avolon is now the world’s third largest lessor.
The strength, and until recently, the profits for aircraft lessors resulted in the passing of Hong Kong tax legislation in July that is intended to catapult the Special Administrative Region into the top three aircraft lessor capitals of the world.
Whether Hong Kong’s ambitions will succeed remains to be seen. Already there are indications Ireland is considering action in the tax area that will nullify Hong Kong’s appeal compared with Dublin. It also is certain that Singapore will not be willing to lose any business of value to Hong Kong.
The proliferation of Chinese lessors and the subsequent competition for deals is pushing down lease rates and making profitability difficult. For some lessors, yields have shrunk to low single figures.
Deep pocketed Chinese lessors will survive. Smaller players either will go out of business or be absorbed by their bigger rivals. Whether this evitable consolidation will guarantee Hong Kong a place of significant aircraft lessor business has yet to be revealed.