SHANGHAI (Reuters) - The global aircraft leasing industry has likely hit a peak, after expanding at a frenetic pace over the past few decades, with competition from new Chinese players dragging down rentals and returns, senior industry executives said this week.
The leasing industry, which accounts for 42 percent of the global aircraft fleet, has so far been aided by lower interest rates and generous bank lending. But growing uncertainties such as geopolitical instability in the Middle East, a firmer dollar and changes to accounting standards for financial leasing could curb growth and weed out the smaller players, they added.
“This is a highly specialised, international, funding and technologically intensive business. I believe we will see many withdraw, or be forced by business problems to quit,” said Wang Fuhou, president of Minsheng Commercial Aviation’s aircraft leasing department, referring to the Chinese market.
“We don’t need this many (Chinese) aircraft leasing firms,” Wang told the China Airfinance Conference in Shanghai.
Hani Kuzbari, managing director of aircraft leasing and financing platform Novus Aviation Capital, agreed.
“There is pressure from China which is resulting in severe pressure on leasing factors and returns ... All-time high liquidity and all-time low returns,” he said. “On the industry cycle we’re very much around the peak, or post the peak.”
The nearly $225-billion (£173.8 billion) global aircraft leasing sector was once the preserve of Western players, but Chinese firms such as the subsidiaries of Bank of China (601988.SS) (3988.HK), HNA Group (0521.HK), Bank of Communications (BOCOM) (601328.SS) and China Minsheng Banking Corp (600016.SS) have muscled their way into deals at home and abroad.
Many Chinese local governments, including Tibet and Xiamen, as well as insurers have also launched leasing firms, helped by government measures to support the sector.
In 2007, Chinese lessors owned just 22 jets out of China’s 430-strong leased fleet, according to ICBC Financial Leasing. By January 2017, these lessors owned 583 planes out of the country’s 1,235 fleet, it said.
Irena Badelska, head of business development at Dublin-based aircraft leasing company Amedeo, estimated there were 54 Chinese leasing firms trying to build expertise in the aviation space.
This is driving fierce competition for clients and qualified staff, said Li Ru, senior vice president of BOCOM Leasing.
“Profit margins are shrinking every year, rents are falling but our plane-buying costs are still growing annually.”
Reporting by Brenda Goh; Editing by Himani Sarkar