In the past few months, all three have put in billions of dollars of bids for aircraft or the companies that lease them, a turnaround in fortunes for an industry that found few takers after the financial crisis.
Deals on their radar currently are the ongoing sales of assets of AWAS Aviation Capital Ltd. and Avolon Aerospace Leasing Ltd., both put on the block by private-equity firms and based in Ireland, a hub for aircraft leasing because it has favorable tax policies.
The allure of aircraft leasing is both returns and growth, especially from airlines in China and Southeast Asia, at a time when the world's airline industry continues to recover. While buying jets to lease represents a long-term investment—the planes can last for 20 years or more—it can provide attractive returns for capital-rich Asian firms and steady cash flow at a time of low global interest rates.
Estimated returns from leasing aircraft were 9% a year on average from 2004 through 2011, while those from running an airline were just 4%, according to a prospectus China Aircraft Leasing Group Holdings Ltd. issued for a July initial public offering, citing data from IATA, an industry group. For their part, the European banks and financial institutions that once dominated aircraft leasing, are still gradually building up their operations after retreating after the financial crisis.
This year, Hong Kong's Mr. Li, who is Asia's richest man, has made several attempts at getting into the aircraft-leasing business, in a bid to offset the volatility in his other businesses, including ports and real estate. Mr. Li's foray comes as the Hong Kong government works on plans to offer tax incentives to lessors based in the city, as part of efforts to become a center for lessors, along with Ireland and Singapore.
Last week, Mr. Li's Cheung Kong (Holdings) Ltd. , a real-estate-focused firm that had nearly $4 billion in cash at the end of June, according to its annual report, struck a deal to buy 60 passenger jets for more than $2.52 billion.
Cheung Kong is also bidding for AWAS's aircraft assets, along with Orix Corp. , a Japanese leasing and financial-services firm; Hong Kong Aviation Capital, a lessor backed by China's HNA Group; and Australia's Macquarie Group Ltd., people familiar with the matter said earlier. The Irish company's aircraft assets have been put on the block by U.K. private-equity firm Terra Firma Capital Partners Ltd., in a deal that could value the lessor at $5 billion. AWAS is the world's fifth-biggest aircraft lessor in terms of fleet size.
The companies seeking to bulk up in aircraft leasing are banking on booming demand from China's airlines, especially because Beijing ended a a six-year ban on new privately owned airlines last year.
A rush for more fuel-efficient aircraft globally, as well as booming demand from budget carriers in Southeast Asia, add to the mix of demand.
Peter Huijbers, a regional head at Hong Kong Aviation Capital, said the lessor aims to boost its aircraft portfolio to $5 billion from $2 billion in about two years by ordering new aircraft and buying jets from airlines in sale-and-leaseback deals. He declined to comment on Hong Kong Aviation's bid for AWAS's assets.
Avolon, the world's 12th-largest lessor by fleet size according to aviation consulting firm Ascend Flightglobal, is also on the market, being sold by private-equity shareholders in an almost $7 billion deal, a person familiar with the situation said earlier. Among bidders for Avolon, which has also filed an application for a New York IPO, is Aviation Industry Corporation of China, a giant state-owned company. AVIC is in talks to buy the firm via its Shanghai-listed unit, AVIC Capital Co., it said Wednesday.
"China requires 5,000 aircraft in the next two decades," said John M. Timpany, a Hong Kong-based tax partner at KPMG. "It's clear there is a huge demand for financing which will attract new investors who are looking for better returns."
China Aircraft Leasing Group is another midsize Chinese-backed firm that is bulking up in this business. It raised about $94 million by listing in Hong Kong this summer, and last week signed a deal with European aircraft maker Airbus Group NV to buy 100 single-aisle aircraft. Based on the list price of the planes, the deal would be worth $10.2 billion.
AVIC and China Aircraft Leasing Group are joining the country's top state-owned banks, which have been expanding in aircraft leasing since the 2008 financial crisis forced many of the European banks that had dominated the sector to step back. As the AWAS and Avolon sales show, private-equity firms are taking advantage of the buying interest.
To be sure, industry experts say, China's fast growth in aircraft leasing could come with risks. The Chinese lessors are "all relatively young, so they haven't gone through a significant downturn," when many airlines default on their leases in some way, forcing lessors to find new customers for the planes, said Jon O'Connell, managing director of Asian-Pacific sales at AWAS.
"It's easy to place new aircraft but the expertise in the industry is having aircraft that come back for return lease, managing all the technical aspects for used aircraft and then being able to remarket them, Mr. O'Connell said, suggesting that many Chinese lessors will face challenges in expanding beyond the domestic market. He declined to comment on the sale of the company's assets.
For their part, Japanese financial firms are looking for returns on their billions of dollars of deposits and are diversifying away from traditional lending. Since the financial crisis, they have been frequent buyers of lessors.
In 2012, Sumitomo Mitsui Financial Group entered the aircraft-leasing business by acquiring a unit of Royal Bank of Scotland Group for $7.3 billion. That same year, rival Mitsubishi UFJ Financial Group Inc., Japan's biggest lender, bought San Francisco's Jackson Square Aviation LLC for $1.3 billion through its subsidiary Mitsubishi UFJ Lease & Finance Co.
Source: Wall Street Journal by Joanne Chiu
from China Travel & Tourism News http://ift.tt/1iB6EFm
Put the internet to work for you.
No comments:
Post a Comment