Asia's aircraft leasing industry in a buying mood
Passenger demand is soaring in Asia. (Courtesy of
Hong Kong International Airport)
HONG KONG -- Asian aircraft leasing
companies are in the midst of an investment spree, snapping up rivals -- and
their planes -- to cater to surging demand for air travel. Behind the growing
travel bug is the rise of both the region's middle class and budget carriers in
emerging markets.
Irish aircraft leasing company Avolon Holdings, a unit
of Chinese conglomerate HNA Group, said earlier this month it will buy the
aircraft leasing business of U.S. financial group CIT Group for $10
billion.
The Dublin-based company currently owns and manages about 430
aircraft, including those yet to be delivered. The combined entity will be the
world's third-largest airlcraft leasing company, with a fleet of 910 planes,
more than double Avolon's current number. The merged company will do business
with more than 150 airlines.
HNA in January acquired Avolon through its
Bohai Leasing unit for $7.6 billion. Its string of large acquisitions
underscores the company's strategy of placing aircraft leasing at the core of
its revenue strategy. The company aims to complete acquisition procedures by
next March after receiving regulatory approval.
Avolon plans to procure
about 350 advanced small aircraft, including the Airbus A320neo and Boeing 737
MAX. Narrow-body jets for short- and medium-haul routes are the bread and butter
of budget carriers, which typically focus on keeping flight volume high and
operating costs low. This suggests the company is projecting a long-term
increase in demand.
Avolon CEO Domhnal Slattery has indicated that more
investment is on the way, saying the recent buyout was not the ultimate goal of
the company's expansion strategy.
Also in an expansionary mood are BOC
Aviation, the leasing unit of Bank of China (BOC), and Hong Kong-based
infrastructure company NWS Holdings.
In June, BOC Aviation raised 8.7
billion Hong Kong dollars ($1.12 billion) by listing its shares on the Hong Kong
stock exchange. It plans to add 220 or so new aircraft to its fleet by 2021,
which would boost the number of planes its owns by 80% to about 480.
NWS
Holdings in March set up a joint venture with U.S. leasing company Aviation
Capital Group. The new company plans to spend $2 billion to buy about 50
aircraft. Last year, the Hong-Kong based company brought Irish leasing company
Goshawk Aviation under its wing.
NWS Holdings is a unit of Hong
Kong-based property developer New World Development. The group intends to
bolster its business in mainland China, widely seen as a promising growth
market.
Leasing aircraft is a profitable business, with an annual average
yield of about 7-9%. Top-ranked Dutch leasing giant AerCap and the No. 2 player
-- a leasing unit of General Electric -- together own more than 1,000 aircraft
worldwide, leaving smaller rivals far behind. Asian players are looking to catch
up with their much larger U.S. and European rivals through buyouts and other
aggressive measures.
Boeing estimates that some 45,000 airplanes will be
in operation worldwide by 2035, double the 2015 figure. Also, passenger tallies
are expected to grow at an annual pace of 4.8%, buoyed by the rise of budget
carriers in fast-growing emerging markets.
Aircraft leasing demand is
growing on the back of such trends. Some market watchers predict that the
leasing ratio will rise to over 50% over the next decade from around 40% at
present.
To cope with surging passenger demand, major Asian air-travel
hubs, such as Hong Kong International Airport and Singapore's Changi Airport,
are undergoing large expansions.
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