Strong liquidity + stable returns, Buffett and Li Ka-shing target the aircraft leasing industry

In the recent period, some investment circles and sovereign wealth funds have increased the aircraft leasing industry, which has gradually begun to enter the public eye and become a key target of the capital market. In this context, what exactly does the aircraft leasing industry rely on to attract capital to get together? What are the unknown risks of the industry? What is its business in the aviation market segment? A reporter from the "Daily Economic News" interviewed the industry People in-depth exchanges, here to restore a real aircraft leasing industry.

"Stock God" Buffett, "Asia's richest man" Li Ka-shing, China Investment Corporation...In recent months, the investment decisions of these world-renowned rich and sovereign wealth funds have intersected. Huge chips of tens of billions of dollars have been thrown into the same industry. -Aircraft leasing industry.

According to the "Daily Economic News" reporter, due to the high unit price and large investment involved, aircraft leasing is somewhat "out of reach". In July this year, as China Aircraft Leasing Group Holdings Limited landed on the main board of the Hong Kong Stock Exchange, the industry gradually entered the public eye, and the influx of top-tier capital made aircraft leasing one of the most sought-after industries overnight. One.

The global aircraft leasing market is in short supply

The aviation industry is a typical capital-intensive industry. For example, the purchase of a commercial aircraft can cost hundreds of millions of yuan, coupled with the maintenance costs in the later period, and the capital occupation is very large. How to optimize the asset structure of the airline and improve its operational flexibility ? In order to solve this practical problem, the segment of aircraft leasing has emerged.

The "Daily Business News" reporter learned from the 2013 annual report of major domestic airlines that as of the end of December last year, China Southern Airlines Co., Ltd. had a fleet of 12 aircraft, of which 561 aircraft were acquired through lease; Air China Co., Ltd. owns Of the 319 aircraft, 477 aircraft were leased. It can be seen that more than half of the aircraft of the two major airlines are leased.

Airlines are turning to leased aircraft because they require less capital investment than direct ownership, which makes fleet planning more flexible. According to a research report by China Securities, according to the general laws of the European and American markets, airlines use their own cash to purchase aircraft only accounting for 26%, and in other ways to obtain aircraft, leasing accounts for about 70%.

According to the International Air Transport Association (IATA), the demand for Asian aviation will grow by 2017% by 5.7, with the largest increase in demand for aviation within or to and from China. As a result, there will be more demand for aircraft leasing in the future.

Many people in the aviation industry told reporters that the current global aircraft leasing market is in short supply. This may be one of the considerations for many capitals to get involved in this field.

Top capital involved in aircraft leasing

In August of this year, Reuters quoted people familiar with the matter as saying that China Investment Corporation (hereinafter referred to as China Investment Corporation) intends to join forces with Aviation Industry Corporation of China to negotiate the purchase of Irish aircraft leasing company Avolon. As of the end of last year, the latter ranked the world in number of aircraft. The 8th place. According to the person familiar with the matter, the value of Avolon's equity is estimated at about 16 billion U.S. dollars, and the debt is worth about 25 to 40 billion U.S. dollars.

As China's sovereign wealth fund, CIC was interested in entering the aircraft leasing industry as soon as the news came out, it immediately caused a lot of waves in the industry.

In fact, in addition to CIC, the most sensitive group of people in the business circle also appeared in the aircraft leasing industry. The reporter noticed that in the past two months, "stock god" Buffett and "Asia's richest man" Li Ka-shing began to show great interest in this industry.

On September 9, Buffett’s private jet leasing company NetJets announced that it has obtained an operation certificate issued by the Civil Aviation Administration of China and can provide private jet charter services in China, becoming the first global private aircraft permitted to conduct business in China. airline.

According to data, Li Jie was founded 50 years ago and is headquartered in Ohio, USA. In addition to the Chinese market that has just obtained a license, its current business scope is limited to North America, Europe and China.

Li Jie currently owns two aircraft at the Zhuhai Jinwan Airport in China. The company will first provide private aircraft leasing services and plans to expand its business to the field of private aircraft management. Li Jie's China business executives said that in the future, the scale of business in China may even exceed that of the US.

Coincidentally, "Asia's richest man" Li Ka-shing also began to make frequent attacks in the field of aircraft leasing. On August 8 this year, Li Ka-shing’s Cheung Kong Industrial Company issued an announcement stating that the company had submitted preliminary non-binding proposals for the possible acquisition of certain aircraft from AWASgroup. The reporter was informed that the subject of Li Ka-shing's intention to bid for this time was a fleet of US$4 billion with 50 aircraft. The seller, AWAS, is an aircraft leasing company under the European private equity fund TerraFirma, headquartered in Dublin, Ireland. If the bid is successful, this will be the largest acquisition in the aircraft leasing industry in the past two and a half years, and it will also be the largest acquisition by Li Ka-shing since 100.

A month later, Reuters revealed that Cheung Kong Holdings was negotiating with MCAviation Partners, a leasing company under Mitsubishi Corporation, to establish a joint venture. MCAviation manages approximately 100 aircraft, most of which are narrow-body aircraft. It is reported that this cooperation will bring about 20 aircraft combinations to Cheung Kong.

In this regard, Sun Hongzhan, a transportation analyst at Minsheng Securities, told the "Daily Economic News" reporter, "Changjiang Industrial's involvement in the aircraft leasing industry has two possibilities: First, they believe that the economy will bottom out and the aircraft leasing market will be resilient. Very big; second, they feel structural changes, such as more and more people who can afford airplanes. Take Buffett as an example, he chose to enter the private jet business for high-income people."

Li Hui, deputy director of the International Shipping and Financial Development Promotion Center of Tianjin Dongjiang Free Trade Port Zone, analyzed from the characteristics of the assets themselves, Buffett and Li Ka-shing value the high qualifications of such assets.

"First of all, aircraft leasing assets have long-term and stable returns. In European and American countries, aircraft leasing assets are issued with better ratings than government-issued bonds. In other words, their interest rates are very low, but everyone will buy them. Although the return is not high, it is stable and safe. Secondly, the liquidity is good, aircraft assets are not easy to depreciate in the market, and the value of aircraft is expensive. Investing in aircraft assets can meet the investment needs of a large amount of funds." Li Hui analyzed.

Banks and international consortia become the backbone

In fact, the assets involved in aircraft leasing are large and high in unit prices. The reporter of "Daily Economic News" found that apart from the world's top wealthy businessmen, the leasing companies are either large financial institutions or international consortia. Taking China’s aircraft leasing market as an example, benefiting from policy dividends, many bank-based leasing companies have faltered from the end of 2007. By the end of 2013, the aircraft leasing assets of ICBC Leasing, a subsidiary of ICBC, reached US$73 billion (approximately RMB 443 billion) , Became the largest company in domestic aircraft leasing assets, and successfully entered the world's top 10 ranks. After five years of development, Minsheng Leasing Company, which has been focusing on business jet leasing, has become Asia's largest business jet leasing agency, with aircraft leasing assets reaching more than 5 billion yuan.

Looking at the world, GECAS, which ranks first among aircraft leasing companies in terms of the total number of aircraft, is backed by General Electric, and ILFC is closely followed. The original parent company is American International Group (AIG), a company based in the United States. It is an international multinational insurance and financial service organization group based. Currently ILFC has been acquired by AerCap, the world's largest independent aircraft leasing company.

The Industrial Securities Research Report pointed out that large leasing companies usually have a deep aviation or financial industry background. The parent company and the company themselves have high credit ratings in the international market, allowing them to obtain low-cost funds in the capital market. In addition, the company has large assets and can order aircraft in large quantities, thereby obtaining more favorable aircraft purchase prices.

In the field of aircraft leasing, independent aircraft leasing companies like Aercap have also risen and become a force that cannot be ignored, such as the domestic China Aircraft Leasing Group Holdings Co., Ltd. (hereinafter referred to as CALC). On July 7 this year, CALC (11, HK) was listed on the main board of the Stock Exchange with an issue price of HK$01848. As of October 5.53, it was reported at HK$10, a cumulative increase of approximately 24% in more than three months.