* CALG to spend $100 mln IPO proceeds on new aircraft
* China plane leasing market seen growing 50 pct by 2018
* Profitability may wilt as competition heats up
By Anshuman Daga and Fang Yan
SINGAPORE/BEIJING, July 11 As China's aviation
market booms, local aircraft leasing companies are raising funds
in finance hubs like Hong Kong and Singapore in a bet they can
win market share from the international players that dominate
With the country's growing middle class fueling a surge in
travel, Boeing Co estimates Chinese airlines will need
nearly 6,000 new jets over the next 20 years, valued at $780
billion. Many of those aircraft will be leased rather than
bought as carriers seek to cap long-term commitments: China's
800-plane leasing market is set to grow 50 percent by 2018,
according to consultancy Ascend.
Friday's market debut in Hong Kong of Asia's first listed
plane lessor, China Aircraft Leasing Group Holdings Ltd (CALG)
, is the clearest example so far of local players
chasing expansion. CALG said the nearly $100 million it raised
in its initial public offering will be mostly spent on acquiring
aircraft to try to expand its 3 percent share of the market.
More IPOs are possible, but a more common tack for the
leasing arms of big Chinese banks, such as Industrial and
Commercial Bank of China (ICBC), Bank of
Communications and Bank of China, is to
set up subsidiaries in the aircraft financing hubs of Singapore
and Dublin to raise funds.
"A lot of the local companies are arms of the big Chinese
banks and they are taking leverage of the connections. The
relationships the parents have helped them to get business,"
said Ilya Ivashkov, a New York-based senior director at Fitch
Chinese lessors are expected to corner 55 percent of the
local market by 2018, up from 38 percent last year, CALG said in
its IPO prospectus, quoting consultancy Ascend.
To do that, though, they'll face stiff competition in the
world's fastest-growing aviation market from the biggest global
aircraft lessors, International Lease Finance Corp, now part of
AerCap, and GECAS, a unit of General Electric.
"Major foreign leasing companies have been speeding up their
expansion in China. As such, the competition will become more
and more fierce down the road," said Mark Jiang, managing
director of aviation finance at ICBC Financial Leasing.
The presence of deep-pocketed players in the aircraft
leasing sector means smaller players will find it hard to make
money, analysts said, even if they do grab market share. Lessors
book revenue from renting out their planes.
"The one issue with having a lot of capital flow into the
sector at once is that it's going to result in more competitive
pricing and more competitive lease terms," said Fitch's
He said that with new plane leases extending to 10-15 years,
the jury is still out on whether the smaller players would be
profitable. "It will ultimately be organic growth or
consolidation," he said.
CALG, whose shares rose as much as 3 percent on their market
debut, is partly owned by a subsidiary of state-backed financial
conglomerate China Everbright Group.
The lessor counts China Southern Airlines Co. Ltd
and China Eastern Airlines Corp Ltd
among its customers, and plans to double its fleet to 64 before
the end of 2016. The aircraft operated by China's airlines are
generally younger than that of the world.
CICC, China Everbright International and CCB International
were joint bookrunners on CALG's IPO.
(Editing by Miyoung Kim and Kenneth Maxwell)