Aircraft Finance In China Starts To Take Shape
The private aircraft financing market in China has matured over the past several years with many sources of funding available for those wishing to purchase airplanes according to the experts here at ABACE. “I don’t think there is any lack of financing alternatives available,” said Jeffrey Lowe, general manager of aircraft ownership consultancy Asian Sky Group. “Pretty much all the international lenders are here and all the Chinese lender banks are involved in business aviation as well. A lot of them have set up leasing arms, so they are all diving in head first.”
Evidence of that maturing of the aircraft financing industry is clearly visible according to Jahid Fazal-Karim, a long-time aircraft sales executive and partner of international aircraft broker Jetcraft (Booth P712.) “They’re pretty smart here and they are getting smarter and smarter in deal structuring,” he told AIN. “They’re doing lease deals and classic financing deals [so] I don’t think they have anything to envy from major western banks.”
Fazal-Karim noted the trend in China of banks such as Minsheng buying large orders of airplanes, is enabling them to use pricing to attract customers. “Those banks that are buying airplanes in bulk and moving those airplanes with financing to their clients, they are not going for too much of a premium on the pricing,” he said. They seem to be focused on making the margin on the financing, so they are not overpricing the airplanes.”
While the domestic lenders are more familiar with doing business in China and may have aircraft available to sell, in most cases the transaction will be more expensive compared to what it would cost for a similar deal with a foreign bank. “If you are a Chinese client and you do an intra-China deal with one of those major banks, you’ll probably end up paying a higher interest rate than if you have assets outside of China and can do a deal with Bank of America, Credit Suisse or one of those because their interest rates probably don’t compare to the base rate here in China,” said Fazal-Karim.
However, prospective customers should be aware that not all banks are comfortable in the market. “There are some lenders that will finance B-registered aircraft and some that won’t,” said Lowe. Obviously, you’ve got the domestic lenders that are more than prepared to do it, but when you look at the foreign lenders, a lot of them are a bit leery about going into a B-China-registration experience.”
The reason for that reticence lies in the prospect of having to repossess an aircraft due to nonpayment. While there has never been an instance of an aircraft having to be repossessed by a lender in the country, it means that the system in place in most of the world has never been tested. “Normally there is sort of a power-of-attorney deregistration that allows the bank to go to the CAAC and say “there has been a default, I am now the owner, I am deregistering the aircraft and taking it out of China,” said Lowe. “Those are all the mechanisms in place, but its never been tested.”
In its recently published Greater China Business Jet Fleet report, Asian Sky Group reported the business aviation market here is growing at a rate of 20 percent a year and those foreign lenders who wish to participate in the growth should find a way around those issues.
As for the qualifications of the customer, there does not seem to be much difference between lenders the world over. “It depends on the risk and it depends on who is borrowing the money,” said Bill Harris, vice president of sales, Asia & Asia Pacific with Textron Aviation (i.e. Cessna and Beechcraft). “Those that don’t need the money seem to be the ones everybody wants to finance.”
Harris noted that the only major difference he has noted on loans in China are in the length of the terms. While those in the U.S. can last 12 years or longer, those in China tend to be much shorter, usually around five years. Textron Finance, the manufacturer’s captive finance unit, is currently establishing structured finance deals together with local third-party lenders. “We work with them because we know our aircraft so well, we help them with the risk analysis of the aircraft, and from that perspective we can help the deal move along,” said Harris.