Catching a tailwind: Aircraft finance services in China
Article 4 minute read

Catching a tailwind: Aircraft finance services in China

20 August 2018

There is no shortage of reasons to be optimistic about the future of China’s aircraft finance sector.

China is forecast to be the world’s fastest-growing market in terms of passenger numbers all the way into 2036. And Chinese airlines are expected to spend over US$1trn in the next two decades on new planes, accounting for nearly a fifth of global demand, to serve an increasingly mobile population.

As their needs expand, Chinese airlines, like their global counterparts, are leasing planes instead of buying them. There are now nine China-based aircraft leasing companies among the world’s top 50, serving clients drawn to fiscal advantages such as lower capital outlays and taxes, as well as operational benefits like flexible contracts, maintenance agreements and disposal programmes.

Looking east

In a sign of the growing popularity of the leasing model in the region, cities across mainland China as well as Hong Kong, seeking to attract local lessors, now provide tax incentives comparable to those offered by Dublin, Ireland, the aircraft leasing industry’s global hub, which continues to see inflows from China.

Hong Kong has tweaked its tax regime to foster the industry locally, prompting firms that operate leasing platforms to launch operations in the city. Hong Kong offers several important benefits, including ready access to the mainland’s aviation sector; one of the world’s largest IPO markets; as well as geographic and cultural proximity to Mainland China. Similar advantages are evident in Shanghai, Shenzhen and Tianjin, which are home to free-trade zones promoting the aircraft leasing industry.

As more foreign lessors look to the mainland market for growth, the China Airfinance Development Summit in September provides the perfect opportunity to gain insights on local regulatory and financing developments, and new investor-friendly initiatives such as an aircraft asset-trading platform and innovative tax declaration schemes. As the home of the Tianjin Dongjiang Free Trade Zone, the world’s second-largest aircraft distribution centre after Ireland, Tianjin makes for an ideal venue for the summit.

Weathering turbulence

While the sheer scale of demand for air travel in the region should help the industry flourish over the long term, there are short-term challenges to be mindful of.

Capital is generally not a concern for China’s aircraft leasing industry, but changing regulations, including tighter controls on cross-border borrowings aimed at streamlining the broader financial leasing industry, could make it harder for new entrants and prompt a wave of consolidation in the near future.

With uncertainty surrounding the supply chains of the world’s largest plane manufacturers, growth in China’s aircraft leasing industry - dependent on the timely delivery of new planes - could be hit.

The US-China trade conflict could affect the supply of new aircraft from Boeing, while Brexit could hurt Airbus’ ability to meet delivery targets. Also in the near term, a lack of qualified technical staff on the mainland and a global industry-wide shortage of pilots could potentially crimp expansion.

Acing the landing

Investors and leasing companies are expanding their operations in new markets for a bigger share of an asset class projected to be worth US$500bn by 2024.

Particularly in markets like China, where economic and regulatory conditions can change quickly, it’s essential to have a partner with deep industry expertise as well as extensive local market knowledge to help create the optimal structures and lay the foundations that sustain long-term growth.

Talk to us

TMF Group’s Aviation Finance Services specialises in SPV incorporation, capitalisation and ownership, and manages hundreds of aircraft leases in SPVs globally, including in Mainland China.

Around the world, our clients include banks, airlines, private equity firms, hedge funds and aircraft lessors. Our in-depth knowledge of the China market and physical presence in several cities, including Tianjin, enable us to effectively assist both foreign lessors looking to launch operations on the mainland as well as Chinese companies keen to expand their operations globally.

Want to know more? Talk to us today. 

Learn more about TMF Group’s Aircraft Finance Services by visiting our booth at the China Airfinance Development Summit in Tianjin on Sept. 4-5, 2018.

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Written by

Derek Ng

Head of North China

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