Reuters Insider - Breakingviews: Asian aircraft leasing prepares for takeoff

Cannabis Bioscience International Holdings

12/08/2014 08:46

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 Source:             Thomson Reuters                                   
                                                                       
 Description:        Attractive financing and increased air travel have 
                     lead to a slew of negotiations for big aircraft   
                     leasing deals, reinvigorating a once volatile     
                     investment, says Breakingviews' Peter Thal Larsen. 
 
 
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Transcript (May be auto-generated)

 Anybody sitting on an airport tarmac here in Asia trying to get into China on a 
full plane knows there's a big demand for aircraft over here. That must spell a 
lot of good things for the aircraft leasing industry. Well, that definitely 
seems to be the case, judging by the reported interest we've had over the last 
couple of weeks in some big deals in aircraft leasing. So, we've seen most 
recently reports that CIC, China's sovereign wealth fund is interested in buying
a leasing company called Avolon which is owned by some private equity guys. And 
that comes only a week after Li Ka-shing, his Cheung Kong Group confirmed it had
submitted a preliminary bid for a portfolio of aircraft leases owned by another 
private equity group called AWAS. So, there's definitely a lot of interest from 
Asia in this industry and that really seems to be driven by the expectations as 
you say that air travel is only going to increase in China and around the 
region. Still, it's got to be very volatile I mean, and during the financial 
crisis, we saw this leasing industry take a big, big hit. 

It's hard to understand why people really want to get back in now again. You're 
right. It did fall out of vogue quite heavily during the crisis. I mean, a 
couple of things happened. First of all, there were a couple of big financial 
groups that have leasing arms that were forced to sell those businesses in order
to raise capital. Royal Bank of Scotland sold its business to the Japanese. And 
then the biggest deal was AIG's business which was eventually sold. Well, they 
tried to sell it to the Chinese and eventually that fell apart and they sold it 
to another leasing company. The other thing that's happened is that the changes 
in bank regulation have made it much less attractive for Banks to provide these 
very long term loans to finance aircraft. So, they've kind of pulled back from 
that business as well. But that's actually played to the advance of just some of
these leasing companies. And underlying all of this, there is still very strong 
and healthy growth in the number of aircraft that are being built and are being 
bought. So the industry estimates that about 35,000 commercial aircrafts will be
delivered over the next 20 years. And leasing is currently about 35% of the 
business and the expectation is that will grow to about 40%, 45% business so you
have a growing market and leasing growing as a share of that. If- and this is a 
big if- the leasing companies can make sure they have access to cheap and 
reliable sources of financing, then it can be a very attractive business and 
that really explains, I think, what is driving this interest from China and from
Li Ka-shing. Busy airspace around the world. Aircraft leasing back in vogue in 
Asia