Air traffic in Asia in general - Curt Lewis

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.