AviaAM Leasing and Chinese HNCA to establish a $1 billion aircraft leasing joint venture
AviaAM Leasing, a Warsaw Stock Exchange listed aircraft leasing company, and the Henan Civil Aviation Development and Investment Company (HNCA) have signed a Joint Venture Agreement, according to which the enterprises will establish a joint-venture aircraft leasing company. It is planned that the Henan-based JV will build and manage a fleet of narrow-body aircraft worth of up to 900 million USD.
“At the moment China and other thriving economies of Asia serve as the engine of global aviation. With double-digit air traffic growth, local carriers will require thousands of new airplanes over the following 15-20 years. Being one of the world’s leading aircraft leasing companies, we are bringing our experience and market expertise to support fleet expansion in the region. In the meantime, our partners at HNCA will provide access to favourable financing terms required for the JV’s fleet development,” comments Tadas Goberis, the Chairman of the Board and CEO at AviaAM Leasing.
Keeping up with the demand
Currently, there are over 20,000 commercial aircraft flying around the world with over 40% of them operated under leasing. Considering that the global fleet is expected to double in less than two decades, this opens substantial opportunities for both aviation and non-aviation investors.
However, while aircraft manufacturers predict that airlines will require hundreds of new aircraft each year, aircraft production rates are failing to keep up with the operators’ needs to receive additional aircraft already today. Understanding these challenges, the fleet of AviaAM Leasing and HNCA JV will include both newly built and mid-life (second lease period) Boeing 737 NG and Airbus A320ceo airplanes.
“Many Asian carriers prefer newly-built aircraft. However, all major manufacturers have their slots fully booked for years ahead while airlines need the aircraft now. Having strong relations with both OEMs and aircraft owners worldwide, we will support the regional market with the supply of additional airplanes under short and long-term aircraft leasing,” comments Tadas Goberis, the Chairman of the Board and CEO at AviaAM Leasing.
Aircraft leasing – strong alternative to other types of investment
Over the past several years, Chinese investors have been actively strengthening their position on the global aircraft leasing market. In 2015 alone leasing companies controlled by the largest state-owned banks in China ordered several dozens of new aircraft while other Chinese investors conducted or are soon to close several multibillion deals on acquiring the already existing leasing companies with their enormous fleets.
The unprecedented interest of Chinese investors in aircraft leasing is backed by the ever-growing demand for new airplanes as well as the overall stability of aviation assets. Aviation is a dollar-dominated market meaning that investors are safeguard against any volatility of their local currencies. The investments are also backed by hard assets and thus they are less exposed to risks commonly faced in the stock market. But most importantly, aircraft leasing is a long-term, capital-intense investment that can generate up to 10-12% returns.
However, aircraft is a very specific asset that requires a deep understanding of the aviation business, including regulations, legal framework and business principles in general. It also calls for vast technical expertise necessary to make sure that in five or ten years’ time your anticipated residual values meet the actual ones. Finally, the success of aircraft leasing is highly dependent on the connections. Many aircraft sales are conducted off the market, and one wouldn’t know anything about an aircraft available for acquisition until the deal is already closed.
“The same applies to airlines – not every carrier announces its plans to lease airplanes publicly. Furthermore, in order to ensure maximum returns, a leasing company should be competent in the afterlife projects like aircraft tear down and subsequent sale of the components to the MRO market,” shares Tadas Goberis, the Chairman of the Board and CEO at AviaAM Leasing. “But with the combined industry expertise of AviaAM Leasing and HNCA’s connections in the regional market, we are confident that the JV will deliver strong results for both our companies and the airline industry as whole.”