Airline News
Mainland lessors take centre stage in investment talks
September 7th 2015
Following months of negotiations, HNA Group’s Bohai Leasing last week agreed to acquire Dublin-based lessor, Avolon Holdings Ltd, for $31 a share. Read More » This is an 8% premium on Friday’s closing price and values the total transaction at $7.6 billion. In July, Bohai had agreed to pay $429 million, or $26 a share, for a 20% stake in Avolon. It increased its offer last month to $32 a share after another bidder emerged. However, when the deal was announced last Thursday, this had been reduced to $31 a share to "reflect the significant volatility across global equity markets", Avolon said.
Robert Martin, the chief executive of BOC Aviation, Asia's largest aircraft leasing firm to date, told the South China Morning Post (SCMP): "We are seeing a trend emerging of more and more large Asian investors getting involved in this market, starting with Cheung Kong last year, Chow Tai Fook, and then Bohai Leasing's bid to acquire Avolon Holdings."
While airlines are expected to suffer losses from weakening Asian currencies, aircraft lessors, which have dollar-denominated revenues, are a good bet for investors seeking shelter from currency risks. Aviation consultancy Flightglobal's Asia finance editor, Ellis Taylor, told the SCMP: "There is increasing appetite [for aircraft leasing] throughout the Asia-Pacific. That's probably where the next big wave of U.S. dollar capital is. Particularly for sophisticated investors with the currency devaluation they get the benefit for holding U.S. dollar assets."
Good investor appetite is in turn expected to keep the cost of funding low for leasing firms. BOC Aviation last week reported a 5% rise in first-half profit, to $171 million, as revenues and assets grew 3% and 5%, respectively. It has a fleet of 256 aircraft, comprising 236 owned and 20 managed aircraft, totalling $12 billion, making it the fifth-largest lessor in the world by value. It has 195 aircraft on order to 2021.
The Mainland’s largest independent lessor, China Aircraft Leasing Company (CALC), in late August said it would expand its fleet from 52 to 168 aircraft by 2022 after it reported a 86% first-half net profit increase, to HK$116.7 million ($15 million), on a 47% revenue boost to HK$635.7 million. CALC has another 116 A320 aircraft on order to 2022.
CALC’s new chief, Chen Shuang, last week publicly distanced himself and the company from his predecessor, Mike Poon Ho-man, who has been missing since May and presumed to be detained as part of the Mainland government’s an anti-corruption crackdown. Shuang, who is also chief executive of China Everbright, CALC’s largest shareholder at 41.53%, reassured the public that CALC, unlike its founder, runs a legitimate operation. "Since Mr Poon got into trouble, we have done an independent audit. Where the company's business is concerned, I don't think there is going to be any relation," Chen said.
"For such a highly leveraged company, we have done a lot to communicate with banks that are extending funds to us, and we have even added new financing channels," Chen said, citing recent export-credit agency supported loan facilities and a 340 million yuan notes issue in July as evidence. "These all happened after Mr Poon's saga [unfolded], showing the company itself is well-run," he said. "I am very confident on the market outlook ... who the shareholder is may be not so important, right?"
