China: Controlled Ascent: Chinese Lessors Prepare For Next Growth Phase

Last Updated: 4 February 2019
Article by Kevin Butler

Chinese aircraft lessors can be seen preparing for the industry's next growth phase, fuelled by a continuing boom in air travel in China and across Asia Pacific.

The growth of China's aviation finance industry over the past decade is a success story by most measures.

Between 2007 and 2017, Chinese aircraft leasing majors have grown in number from only four to more than 20. In the same period, Chinese firms' ownership of all leased planes in the country shot up from 5% to over 50% while their share of the global aircraft leasing market rose from near zero to 10%.1

Now, with an eye to the future, Chinese lessors can be seen preparing for the industry's next growth phase, fuelled by a continuing boom in air travel in China and across Asia Pacific.

Growing at home

China is slated to be the world's fastest-growing air travel market (by passenger numbers) for the next two decades.2 To meet this demand, the country is estimated to need about 7,000 planes worth over US$1trn.3

This translates into a huge business opportunity for China's aircraft lessors, especially after accounting for airlines' growing preference for leasing planes instead of buying them. Indeed, over 50% of aircraft worldwide are now leased.4 Aiding Chinese lessors in mining this growth are various government initiatives introduced over the years.

In 2007 the China Securities Regulatory Commission allowed local banks for the first time to establish leasing companies.5 This was followed by the launch of the Dongjiang Free Trade Port (DFTP), which conducted its first aircraft leasing transaction in 2009.6 Since then, it has enabled the industry's growth with business-friendly policies such as offering tax rebates and allowing lease payments in foreign currencies. As of June 2018, the DFTP has facilitated the delivery of 1,200 aircraft worth over RMB450bn.7

Expanding abroad

Success at home has prompted Chinese leasing companies to look for growth in foreign markets.

Their overseas ambitions also have received the government's support in the form of a decision, in 2015, to provide subsidies to and streamline regulatory and tax frameworks governing cross-border financial leasing services.8

Since then, all major Chinese lessors have built up a sizable presence abroad, typically starting their international operations in Ireland or Hong Kong, or a combination of the two. These locations offer significant benefits to lessors considering and comparing various international leasing and financing platforms.

Ireland, with its 72 double tax treaties,9 is the global hub for aircraft leasing and an ideal place for Chinese firms to base their foreign business. Hong Kong is becoming a regional draw with its rule of law, low regulatory barriers and recent tax reforms aimed at promoting aviation finance. The city also offers benefits to companies from the mainland such as geographical proximity, a shared language and business culture, and access to new growth markets such as the Greater Bay Area.10

Lessors can also maximise their reach and profitability by factoring the location of their current and potential clients into the decision on where to base their foreign operations.

There is plenty of room to grow. The International Air Transport Association predicts global air passenger numbers will double to 8.2 billion in 2037 and the Asia Pacific region will account for over half of this growth.11 So far, business has been good with the value of the fleet managed by Chinese lessors growing by over 15% from the previous year to more than US$40bn in 2017.12

Coping with challenges

The healthy growth has unleashed a fresh wave of competition at home and abroad, and Chinese lessors can expect to face some crosswinds as they seek to expand in the years ahead.

Along with a spurt in the number of leasing companies, China's evolving aviation market is following a natural growth trajectory similar to those seen in markets across Europe and the Americas over the past decade. This includes a move by airlines, buoyed by the strength of their local balance sheets, to raise funds on their own. Increased competition has hurt lease rental rates and bottom lines, bringing consolidation to the industry and forcing Chinese leasing companies to work harder for market share.

Chinese lessors looking to succeed in foreign markets also have to contend with operational challenges such as opening a bank account - a basic yet pervasive issue affecting leasing companies across jurisdictions. Additionally, lessors also face staffing issues and cultural differences abroad that can hobble smooth, linear growth.

To cope with these issues, Chinese lessors are closely examining and rationalising their operations to improve efficiencies, become more competitive and enhance profitability. This exercise can be effectively tackled with the help of a partner providing the right mix of industry expertise, global networks and local knowledge.

Talk to us

TMF Group, with its capital markets team in all major leasing hubs is perfectly positioned to serve as your global one-stop shop, providing core services such as accounting and payroll, as well as operational and consultancy support, to assist aviation leasing companies expand to - and succeed - in foreign markets.8

Need more information? Contact us today

Don't let complexity hold you back - learn how we help our global clients take their ventures to new heights.

Footnotes

1 http://www.globaltimes.cn/content/1119328.shtml

2 http://www.globaltimes.cn/content/1119328.shtml

3 https://www.tmf-group.com/en/news-insights/articles/2018/august/china-aircraft-finance-services/

4 https://www.reuters.com/article/us-china-aviation-boeing/china-to-spend-over-1-trillion-on-planes-over-next-20-years-boeing-idUSKCN1BH0T2

5 http://www.globaltimes.cn/content/1119328.shtml

6 http://www.globaltimes.cn/content/1119328.shtml

7 https://www.scmp.com/business/china-business/article/1597686/tianjin-leads-china-plane-leasing

8 https://www.tmf-group.com/en/news-insights/articles/2018/december/aviation-finance-industry-in-asia/

9 http://english.gov.cn/policies/latest_releases/2015/09/07/content_281475184814808.htm

10 https://www.tmf-group.com/en/news-insights/articles/2018/december/aviation-finance-industry-in-asia/

11 https://www.tmf-group.com/en/news-insights/articles/2018/december/aviation-finance-industry-in-asia/

12 https://www.iata.org/pressroom/pr/Pages/2018-10-24-02.aspx

13 https://www.flightglobal.com/news/articles/analysis-how-chinas-aircraft-lessors-gained-global-452268/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions