This week in Hong Kong, more than 1,000 airlines, lessors and financiers from across the globe convened at the Airline Economics Growth Frontiers conference to discuss the current trends, topics and developments in the aviation industry. As a major participant in the sector, Intertrust attended and sponsored the event, coming away with the following key insights.
- Cautiously optimistic: the underlying fundamentals of the aviation sector are strong, with global air passenger numbers rising and strong growth expected to continue in China for the foreseeable future. Aircraft leasing is central to this growth story, with lessors expected to own over 50% of the world's commercial fleet over the coming decade. However, the next few years is likely to present some challenges for the leasing industry with increasing competition, geopolitical tensions and a number of macroeconomic headwinds such as rising jet fuel prices and increasing interest rates.
- Hong Kong reforms: recent legislative reforms have resulted in increased interest in Hong Kong as a jurisdiction for leasing platforms. A number of successful deals have already been completed and Hong Kong's role in the global aircraft leasing sector will continue to grow over the next few years. This is being driven by insatiable demand from Chinese lessors, many of whom are now looking to transform their domestic-focused platforms into international platforms. Having Hong Kong as a viable option alongside other attractive jurisdictions (such as Ireland and Cayman Islands) gives more options for lessors and is a positive development for the industry. Of the 10,000 new aircraft expected across Asia in the next decade, 6,000 will be in China. This means that Hong Kong's physical location, combined with its position as a global financial center, will see it flourish as the regional go-to location for aircraft leasing.
- Aviation finance centre: Following a number of ground breaking deals by aircraft lessors to launch their Hong Kong platform earlier this year, other players in the aviation finance ecosystem such as engine lessors, technical services firms, airlines and aviation specialized finance institutions are now also looking to expand into Hong Kong. For instance, one of the world's largest engine lease finance companies has recently followed their customers' footsteps to set up offices in Hong Kong. Several firms specializing in aircraft leasing technology solutions are also actively planning to expand their Asian presence. This shift is closely aligned with the City's ambition to become the third largest aviation finance centre.
- End-of-life solutions: the aviation industry has seen significant and steady growth for the last 50 years. As commercial fleets grow and aircraft retire, end-of-life solutions ("EOL") are an increasingly valuable aspect of the aircraft life-cycle. Encompassing disassembly, recycling and parts re-sale, EOL providers are helping owners and lessors extract maximum value out their aircraft. Sometimes referred to as a recession-proof business, EOL's will play an increasingly important part in supplementing industry growth.
- US-China Trade War: aircraft have so far been excluded from additional tariffs imposed in the on-going US-China trade war. Heightened tariffs could have significant implications to production and purchase costs of aircraft: manufacturers, lessors and investors remain cautious, as tensions continue to escalate.
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