China Aircraft Leasing Mulls Widebodies as Asia Demand Rises

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(Bloomberg) -- China Aircraft Leasing Group Holdings Ltd. is looking to add more widebody aircraft to its fleet as the Hong Kong-based lessor races to tap surging demand from airlines in the Asia-Pacific region.

Widebodies tend to have better returns on rentals and they will account for a maximum of 20 percent of CALC’s fleet, Chief Executive Officer Poon Ho Man said in a telephone interview on Wednesday. The company currently has 89 planes, including some A330s, and counts Air China Ltd., AirAsia Bhd. and ANA Holdings Inc. among its customers.

“We are being cautious in our selection,” Poon said. “We will look at models with broad market recognition. Boeing’s 787 and Airbus 350 are some of the most successful widebodies.”

CALC is among a slew of lessors in Asia that are expanding amid an air travel boom that will see China surpass the U.S. as the world’s biggest aviation market by around 2024. Boeing predicts China will need 6,810 aircraft in the 20 years through 2035, making it the world’s biggest single country market worth over $1 trillion. Poon said CALC will take delivery of no fewer than 40 aircraft annually starting 2020, more than doubling from last year.

Half of those planes will be leased to customers outside China as CALC diversifies its base, Poon said. Earlier this month, the company placed an order for 50 Boeing 737 Max aircraft worth about $5.8 billion based on list prices, to be delivered through 2023. In 2014, it placed a $10 billion order with Airbus for its A320 jets.

Leasing Hub

CALC is betting on Hong Kong becoming the next aircraft leasing hub, rivaling Singapore and Ireland, after the city’s Legislative Council passed some tax breaks for the industry this week. The move could reduce the effective tax rate on plane-leasing companies to less than 10 percent from more than 30 percent.

“We hope to play a role in facilitating Hong Kong to become an international aircraft-leasing hub,” he said. “We believe that with the revision of the tax code, the Hong Kong government will be able to emulate and catch up with Singapore and other aircraft-leasing hubs.”

Shares of CALC declined 0.5 percent to HK$9.13 as of 10:35 a.m. in Hong Kong Friday. They have advanced 26 percent in the past year, mirroring gains in the city’s benchmark Hang Seng Index.

The company isn’t under pressure for mergers and acquisitions, though Poon would look at potential targets that could bring value to CALC, he said, declining to elaborate.

“We don’t care if we have the largest fleet size,” Poon said. “We care about whether we can provide the best solution to meet clients’ needs in aircraft leasing, retiring, and maintenance.”

Competitors have gained scale through acquisitions. Avolon Holdings Ltd., controlled by China’s HNA Group, last year agreed to buy the aircraft-leasing business of CIT Group Inc. for $10 billion to create the world’s third-largest rental fleet.

To read about the graveyard in Harbin for old aircraft, click here

In March, Aircraft Recycling International Ltd., a company backed by CALC, acquired Universal Asset Management Inc. to help bolster its aircraft recycling services, a business Poon says is very promising on the Chinese mainland, as carriers look to phase out old aircraft while taking new ones.

Poon said Chinese airlines retired around 100 aircraft last year and that number is expected to rise 10 percent annually. CALC has been recycling such aircraft, leasing them to carriers in other countries after maintenance or converting them into freighters that are finding increasing demand in China amid the country’s e-commerce boom.

The lessor has also been raising funds by converting its receivables into marketable wealth-management products, and aims to expand its offerings to cover leasing accounts of 20 aircraft each year worth $1 billion, Poon said.

The company is looking to work with Commercial Aircraft Corp. of China Ltd. to build a customer base for its C919 -- China’s first home-made single-aisle passenger jet -- once it is available, Poon said. The plane made its first maiden test flight last month.

“We have absolute confidence in the China-made C919,” Poon said. “But to be realistic, they are yet to have a global customer base that Airbus and Boeing enjoy. So, we have to find a specific market for the aircraft and provide support in areas such as operation, maintenance and financing.”

With assistance from Dong Lyu

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