Potential credit crisis in China would hurt aviation industry

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Introduction

Sept. 4, 2017, © Leeham Co.: China, now the world’s second largest economy, appears to be feeling the strains of its long, explosive growth.

The economy is slowing, there are concerns about capital outflow and increased debt by key companies.

HNA Group is one of China’s largest companies and a global investor. Indeed, it’s one of the largest in the world.

Its place in commercial aviation is known among those who are integral parts of the industry, but the depth of its reach may not be well understood.

Due to recent transactions, HNA now is owner of one of the largest aircraft leasing portfolios in the world, with nearly 600 aircraft. Another 253 airplanes are on order.

This includes the acquisition this year of CIT Aerospace, which added more than 300 aircraft to the Avolon portfolio.

Avolon was acquired by HNA in 2015.

However, HNA’s growth means debt, and according to several media reports, the Chinese government is now scrutinizing HNA under a general government “crackdown” on capital leaving the country.

Summary
  • Widespread investment in airlines and a few in lessors.
  • China’s cracking down on money leaving the country.
  • Leverage also concerns the government.

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Air Berlin files for bankruptcy

By Bjorn Fehrm

August 16, 2017, ©. Leeham Co: Air Berlin, Germany’s second largest airline, with 85 destinations, 8,000 employees and 72 aircraft, filed for bankruptcy yesterday.

We wrote about Air Berlin’s problems in October last year and we’ve covered its part owner, partner and moneylender, Etihad Airways, in articles this year.

It was the latter that no longer believed in Air Berlin’s turnaround plan and stopped the money flow.

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Boeing’s tactical option for MOM sector

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Introduction

Aug. 14, 2017, © Leeham Co.: It’s not a done deal yet—the business for the so-called Boeing 797 remains a challenge. But the consensus is that Boeing will launch the program next year, for an entry-into-service around 2025.

Boeing 797 concept. Source: Boeing.

Yet there are airlines that say they don’t want to wait that long for a new airplane.

What are their choices?

  • Acquire the Airbus A330-200. It’s available now. Fuel is cheap and is expected to remain so well into the next decade.
  • Acquire the A330-800. It’s fairly cheap. It’s about 10% less expensive to operate on a per-trip basis than the A330-200. The new engines will serve as a hedge against rising fuel prices for an indefinite future.
  • Acquire the Boeing 787-8.
  • Airbus ponders an A321neo+.
  • There’s another option that is not readily apparent.

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Pontifications: Avolon sees strong sales for Boeing 737-10

By Scott Hamilton

Aug. 14, 2017, © Leeham Co.: Avolon, one of the world’s largest aircraft lessors following the acquisition of the CIT Aerospace portfolio, believes Boeing will see 2,000 of the 737-10—doubling the internal figure Boeing used to launch the program.

In a new white paper, which Avolon periodically issues, the lessor “projects that the MAX 10 will account for approximately 20% of all 737 MAX family deliveries, which would equate to around 2,000 aircraft. This compares to the A321neo, which is forecast to account for 40% of the A320neo family, with over 4,000 deliveries,” writes Steve Mason, Avolon’s SVP of Strategy.

Mason joined Avolon from CIT acquisition, where he held a similar position and likewise issued periodic white papers.

“The value proposition of the MAX 9 has been impacted by the launch of the MAX 10. It is unclear what role remains for the aircraft, but it is likely to have a limited future,” Mason writes.

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Propelled by MAX 10, Boeing thumps Airbus at Paris Air Show

June 22, 2017, © Leeham Co.: The Boeing 737 MAX 10 received a rousing endorsement from lessors and airlines last week at the Paris Air Show.

There were 361 orders and commitments announced, blowing through Boeing’s own forecast Monday of 240 orders. Never mind that 214 are conversions from other MAX orders, a fact Airbus COO Customers John Leahy used to downplay the program launch: the performance is a dramatic contrast to the poor reception Boeing received only three months earlier, at the ISTAT conference in San Diego, when a soft launch was rolled out by Boeing.

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Interest seen in Boeing’s “797,” says lessor

May 16, 2017, © Leeham Co.: Air Lease Corp., one of the world’s leading lessors, sees

John Plueger, CEO of Air Lease Corp.

a “quite a bit” of interest from its customers in the prospective Boeing Middle of the Market aircraft, says its CEO, John Plueger.

Speaking at the Airfinance Journal conference in New York today, Plueger acknowledged with some push from moderator Mark Streeter of JP Morgan that pricing needs to be in today’s dollars in the $70m-$75m range.

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ISTAT Asia 2017: The fight for the lead

By Bjorn Fehrm

May 11, 2017, ©. Leeham Co: Airbus and Boeing had their customary presentation match at the second day of the ISTAT (International Society of Transport Aircraft Trading) conference in Hong Kong. Each OEM stuck to a theme throughout their presentations.

Boeing’s was “market leader.” As the one that delivered the most aircraft during 2016, Boeing had the right to the claim. Airbus countered with “value protection leader.” The neo success saves airlines from having to change aircraft families. Read more

Hong Kong, the future aircraft leasing gateway to China

By Bjorn Fehrm

May 11, 2017, ©. Leeham Co: We are attending the ISTAT (the International Society of Transport Aircraft Trading) conference in Hong Kong this week. The conference was opened by the Chief Executive for the Hong Kong region of China, Mr. C. Y. Leung. He gave an interesting perspective of the future of Hong Kong in the aviation finance market.

Hong Kong is the number four finance center in the world. But the present tax rules prohibits aircraft leasing companies to establish Hong Kong as their hub for China and Asia.

The companies cannot deduct the costs of the aircraft ownership from their lease revenue, for non-Hong Kong operators. This will now change. Read more

A330 easier to re-lease than 777

This is the second of two Parts looking at the wide-body market

April 25, 2017, © Leeham Co.: When lessors face re-leasing wide-body airplanes as lease terms expire, they face a far narrower market than for single-aisle airplanes.

While there may be a thousand operators which can be targets for Airbus A320s and Boeing 737s, there may be only a hundred operators interested in the most popular wide-body aircraft. When you get to the Very Large Aircraft sector, the potential market declines to the figurative, and perhaps literal, handful.

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CDB Leasing aims for 500-600 aircraft portfolio

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Introduction

March 16, 2017, © Leeham Co.: China’s evolving commercial aerospace and aviation industry has high-profile companies such as AVIC and COMAC, and its expanding supplier based, combined with joint ventures with Western companies is well known.

Less well known is the growth in the aircraft leasing business. Increasingly, Chinese lessors are showing up on the order lists of the Big Four aircraft manufacturers. Still, there remains a bit of a mystery about the lessors and dynamics within China.

LNC spoke with the newly appointed CEO of CDB Leasing during the ISTAT conference last week in San Diego.

Peter Chang has been in the Western leasing business for decades, employed in key positions with Aviation Capital Group, ILFC and Aircastle—usually with responsibility for China.

He was named CEO of CDB in December, a move that was announced during the January Dublin conferences of Airlines Economics and Airfinance Journal. More key personnel announcements were made during ISTAT.

In an exclusive interview, LNC asked Chang about the origins of CDB, other Chinese lessors, the current policy of restricting flow of Chinese cash outside the country, the Boeing 737-10 and the Bombardier CSeries.

Here is this interview.

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