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China’s Leasing Play

The prospects of China’s leasing market were analyzed at Engine Leasing, Trading and Finance on Thursday (May 3).

China’s ambitious play in the aviation leasing segment is expected to continue over the next two decades but challenges around expertise exist, the aviation finance advisory leader of consultancy giant PwC said.

Speaking at Aviation Week's Engine Leasing, Trading and Finance on Thursday (May 3), Rachel Frye believes China has ambitions to become the world’s largest aviation lessor over the next 20 years. Underpinning this is a different approach than those adopted in other global regions. “China has a different attitude towards the leasing market in terms of adopting a much more long-term view than other regions,” she says.

Frye states that while engine lessors in countries such as Ireland may classify 10 to 12 years as long-term, Chinese lessors instead take a 20 to 30 year view while being understanding that they may incur financial losses in the short term.

However, one area of concern is China’s long-standing preference for newer aircraft and engine types leading to a lack of expertise in the secondary market. “Lessors and investors who have bought aircraft platforms are starting to see a greater level of maturity in their fleet,” says Frye. “There are ripples of concern that the Chinese are beginning to realize a lack of understanding exists of the secondary market. This is a very different beast from taking new aircraft and putting them into the fleets of top-tier airlines.”

This, Frye says, is because large numbers of aircraft are soon to come off-lease and traditional operators in China are not interested in those assets. “There is also a realization that they [China] don’t have the right teams, expertise and networks in which to place these aircraft.”

Frye says PwC is fielding a growing number of inquiries from Chinese lessors to explore other regions as potential areas for re-leasing their aircraft. This also extends to carriers also looking to venture into leasing. “Some of these are airlines themselves who are taking their own aircraft and set up leasing platforms to lease into other parts of the world outside of China.”

Frye predicts Chinese operators also will look at other ways to manage some of their assets, a scenario where engines will come into play. “It’s a steep learning curve for them at the moment for aircraft and engine leasing and management as that’s something Chinese operators are yet to truly get on top of,” she says.

To grow this, Frye says more Chinese leasing companies are looking to bring in technical expertise from across the world.

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