August 29, 2017 / 9:43 AM / 3 months ago

Aircraft lessor BOC Aviation's CEO sees oversupply risks to industry

SINGAPORE (Reuters) - Asia’s second-biggest aircraft lessor, BOC Aviation Ltd (2588.HK), posted a 13 percent rise in half-year net profit but its CEO warned of a potential fall in industry yields from next year as lessors globally absorb more aircraft deliveries.

FILE PHOTO: BoC Aviation model planes are seen at their office in Singapore in this May 16, 2016 photo illustration. REUTERS/Edgar Su/Illustration

“There is going to be some downward pressure,“ Chief Executive Robert Martin said in a phone interview with Reuters. ”We are pretty much placed for next year already. For us, that will affect us in 2019.”

The company, which is based in Singapore but majority owned by Bank of China (601988.SS), reported a net profit of $240 million for the six months ended June 30, up from $212 million a year ago.

Its net lease yield remained steady at 8.5 percent as its fleet of owned and managed aircraft grew to 297 as of June 30 from 265 in the prior year.

Asian lessors are investing billions of dollars to expand in a sector that offers long-term and dollar-based revenue, underscoring the region’s importance to an industry that makes up about 40 percent of the world’s airline fleet.

The majority of BOC Aviation’s aircraft are deployed with Asian airlines, with Cathay Pacific Airways Ltd (0293.HK) and Indonesia’s Lion Air Group among its main customers.

In Europe, Alitalia and Air Berlin have been declared insolvent, leading to concerns their aircraft will have to be placed with other airlines. Martin said BOC Aviation had no exposure to Alitalia and only one aircraft with Air Berlin, which is seeking buyers for the business.

BOC Aviation listed in Hong Kong last year when it raised $1.1 billion in the biggest IPO by an aircraft lessor globally.

The company said on Tuesday it would change its dividend policy to increase the payout to as much as 35 percent of net profit from 30 percent previously. It announced an interim dividend of 10.38 cents per share, up 70 percent from the prior year.

This month, BOC Aviation finalised an order for 10 Boeing Co (BA.N) 737 MAX 10s valued at $1.25 billion at list prices.

That model, the largest version of the narrowbody aircraft, was launched at the Paris Air Show in June.

Reporting by Jamie Freed and Anshuman Daga; Editing by Muralikumar Anantharaman

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