Chinese Leasing Company in talks with Boeing about possible aircraft order

China Aircraft Leasing Group Holdings Ltd. is talking to the Boeing Co. about a possible order after pledging to buy 100 Airbus Group NV airliners valued at $10.2 billion to support expansion in its home region and beyond.
 
The Chinese lessor, based in the Tianjin free trade zone and known as CALC, committed to purchasing single-aisle A320 planes from Airbus, a combination of existing models and future neo versions with new engines. CALC also said it’s exploring Boeing planes as the lessor gears up to serve airlines both replacing older jets and adding more for new routes.

Leasing companies are boosting fleets and expanding across Asia, which is set to overtake the U.S. as the world’s largest plane market as economic growth in China, India and Southeast Asia encourages more air travel. CALC, which gave no indication of planned delivery dates, said the large order will enable it to help airlines with long-term fleet planning.
 
“There is huge potential demand globally,” Jens Dunker, who heads aircraft trading at CALC, said in an interview in Hong Kong. “Some 80 percent of current-generation planes need to be replaced by new aircraft in the coming years.”

CALC has no plans to venture beyond single-aisle aircraft for at least another year or two, he said.

The deal with Toulouse, France-based Airbus should close by the end of this year at the latest, and possibly this month, with the purchase price to be settled by cash from internal resources and bank borrowings, the lessor said in a filing to the Hong Kong stock exchange. At this point, CALC has 38 aircraft, all but one Airbus single-aisle models.

Financing Framework

 

The lessor also signed a framework agreement with the Export-Import Bank of China for as much as 10 billion yuan ($1.6 billion) of financing.
 
CALC has already lined up airline customers for two of the 100 planes to be ordered, both in the Greater China region. Dunker said he expects at least 50 percent of the total to be placed in the region, possibly more.

Economic growth across Asia is propelling gains in air travel, encouraging carriers to expand. Today’s agreement comes less than a month after Airbus won a commitment for 250 planes valued at $26 billion at list price from Indian budget carrier IndiGo.

Carriers in several areas of Asia, including China and East Asia, may not have placed enough orders yet to cope with future demand, CIT Aerospace, a unit of New York-based CIT Group Inc. and one of the industry’s larger and more-established plane-leasing companies, said in a report yesterday.

Cit's Prediction 
 

With traffic projected to grow by 6 percent annually, Asian markets will need about 13,000 new aircraft over the next 20 years, CIT said. Even so, softening yields, or average fares paid, and declining load factors, or seat utilization rates, have fueled concerns about a long-term surplus.
 
Low-cost carriers account for about 20 percent of Asia’s market in terms of available seat miles, versus 30 percent in Europe, leaving plenty of room for expansion of that segment, CIT said.

In the last few weeks, Hong Kong billionaire Li Ka-shing’s Cheung Kong Holdings Ltd. and Malaysian low cost carrier AirAsia Bhd. (AIRA) have entered the aircraft-leasing market as demand for planes rises, with economic growth in the region making air travel affordable to more people.

 

Cheung Kong has also submitted a preliminary proposal to acquire some planes of Awas Aviation Capital Ltd.

Push Abroad

China is encouraging its plane-leasing companies to look for opportunities overseas. Chinese lessors have been focused on the domestic market since the regulator first allowed banks to start leasing aircraft in 2007.

In July, CALC became the first aircraft-leasing company in the region to sell shares to the public. In August, it signed an agreement with state-owned carrier Air India Ltd. to lease five A320s starting next year, the company’s first pact with a non-Chinese carrier.

 

Last month, Airbus also won an agreement from China for 70 A320-series models valued at $7 billion. China is poised to displace the U.S. as the world’s largest aircraft market in two decades, according to the European planemaker.

(Clement Tan and Andrea Rothman - Bloomberg Business Week)