China's CDB Aviation Lease Finance has gone public with an order for 30 Boeing airliners and may place further jet orders and make selective acquisitions as it expands globally.
The Dublin-based arm of China Development Bank today identified itself as the buyer for 30 Boeing 737 MAX 8 aircraft.
Approximately 40 per cent of the world’s commercial aircraft are not owned outright by airlines, according to the International Air Transport Association (Iata), but are leased, and forecasts show this figure will increase by 50 per cent by 2020.
More than half of these leased aircraft are owned and managed from Ireland.
It was the first such announcement since the leasing veteran Peter Chang became the chief executive in December with a remit to expand.
“Our model is very clear: we will become a global leasing platform, which means international, including non-Chinese and Chinese [activities],” Mr Chang said.
It comes as Boeing and Airbus face a slowdown in the aerospace business cycle. Several airlines are talking of postponing taking jets due to economic concerns.
“To a certain extent it has already started, and it is good for us as a long-term player. It could very well mean that it is an opportunity for us to place another order,” Mr Chang said.
“We do not want to be aggressively big for the sake of it, but we are aggressive and we are going to grow,” he added.
“We will be looking at US$3 billion to $4bn a year growth … not to the point of being too risky, but we will have a basic skyline [sequence of deliveries] from manufacturers and we will have a healthy order book,” he said.
“And on top of it we will have a small budget for pop-ups, and that is flexible,” he added, using a term for aircraft that become available when original buyers retreat.
Asked whether CDB, which has not entered an auction for the Irish lessor Awas, would also grow through acquisitions, he said, “Yes, in normal circumstances … We can only digest so much and have to be diligent about that.
According to the Iata’s 20-year forecast, the Asia-Pacific region will see 7.2 billion airline passengers in 2035, up from the 3.8 billion estimated for 2016 –and China is set to overtake the US as the world’s largest aviation market.
“We are long-term players. Our investors don’t have a six-year exit strategy. We are not going to sell up our aviation portfolio and start renting bicycles. We are going back to the old-fashioned way of working with airlines, rather than trading aircrft. We are more traditional in that sense.”
Mr Chang last week attended the Istat Americas air finance conference, whose record attendance underscored a flood of investors looking for higher returns amid low interest rates.
The influx has put pressure on lease rates and spurred talk that some will exit as the cycle turns lower. Financiers say there are more than 50 leasing companies in China alone.
“There are lots of reasons why there are so many lessors from China. They have limited capital investment alternatives, a similar reason why so many investors went overseas,” Mr Chang said.
“I think that once the capital investment market is normal in China, when they have similar investment instruments to those abroad, then a lot of this money will leave aviation because they are not getting the yields.”
* Agencies
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