As China gears up to challenge for a place in the world air transport market with its Comac ARJ21 regional jet and C919 narrowbody, the country is also looking to employ its growing financial heft to support their introduction to market.
To that end, prospects look good for ICBC Leasing, the aviation, shipping and heavy machinery finance subsidiary of China's biggest bank, the Industrial and Commercial Bank of China.
ICBC established its leasing arm in November 2007 after the Chinese government allowed its banks to move into areas like leasing and insurance. That diversification helped Chinese banks move into international markets, and today ICBC Leasing manages 20 billion yuan ($3 billion) in assets and in September received approval to increase its equity base to 5 billion yuan from 3 billion yuan.
Johnny Lau, global head for aviation finance, says: "We really want more aircraft to expand our portfolio. There is no limit on what the additional capital should be spent on - whoever can grow the business will get the capital. We can support up to 12 times the value of the capital, so the company can potentially have up to 60 billion yuan in assets."
He adds: "If anyone out there has assets for us, please give them my number."
STARTING SMALL
As of September, the company had 25 aircraft in the portfolio - a mixture of Boeing, Airbus and Embraer aircraft on a combination of finance and operating leases.
That portfolio is tiny by aircraft leasing industry standards - mega-lessors GECAS and ILFC have owned and managed fleets of more than 1,000 aircraft, and the next-biggest tier such as Boeing Capital, CIT, Babcock & Brown or AerCap have fleets of around 300. Chinese rival BOC Aviation, which bought Singapore Aircraft Leasing Enterprise and its large customer base in 2006, is also far ahead of ICBC.
GROWTH DRIVER
But ICBC is set to ride the wave of Chinese aircraft industry expansion as an owner of indigenous Chinese aircraft like the ARJ21 regional jet and C919 narrowbody. Supporting these programmes is viewed as a "national duty" by Chinese banks.
ICBC Leasing has agreed to tentatively buy 30 ARJ21s, has options for 50 Airbus A320s that the European company will assemble in China, and "will be involved" in the forthcoming C919 that may threaten the duopoly of the A320 and Boeing 737 in the narrowbody market.
"The bank's senior management feel that the Chinese production business is important for us and for the bigger agenda of the country," says Lau, a Hong Kong native.
Lau concedes that doing business in China can be a challenge: "Regulations are sometimes not clear when it comes to legal and tax issues." But ICBC has tried to find different ways to do business and successfully closed two offshore leases in recent months - partly by using the freedom offered to its foreign subsidiaries.
"Cross-border issues are always big issues," says Lau. "But the general environment is improving. The government is doing things to make the business environment better. We must understand that this is a conservative government and they will do things gradually. They don't want to be too open and lead to chaos. But they also realise that China is facing competition from around the world and that there are a lot of changes to reflect that."
GLOBAL CHALLENGE
ICBC Bank itself has become a global operation, and it has been involved in aviation finance through the participation in lease transactions and syndication for airlines. "There is some brand recognition and that rubs off on us," says Lau, although he notes that "many airlines outside China are still name-conscious or not sure about the Chinese companies and banks".
ICBC's strategy - and challenge - is finding enough aircraft. "The main issue for lessors is funding and those with easier access to funds will grow faster. Our situation is different - I need to grow my portfolio at a faster rate than others," says Lau.
Source: Flight International
