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Shaw Capital Management Factoring: Chinese pockets are deep enough for bizav boom

April 7, 2011 | Author Shaw Capital Management Factoring and Financings

http://www.ainonline.com/news/single-news-page/article/chinese-pockets-are-deep-enough-for-bizav-boom-29083/

By: Charles Alcock

March 26, 2011

Chinese companies are at the forefront of efforts to provide the capital needed to expand that country’s business aircraft fleet via finance and operating leases. Beijing-based Minsheng Financial Leasing has already acquired 32 jets and expects all of these to be in service with operators in China by year-end–at which point it intends to have extended its portfolio of aircraft ordered to around 50.

Minsheng was established in April 2008 as one of the first financial leasing companies approved in China. It has total registered capital of RMB 3.2 billion ($480 million) and provides support with aircraft evaluation, importation, management and operational support.

“China’s general aviation market is open,” Minsheng president Zhang Bo told attendees at the International Corporate Jet & Helicopter Finance Conference. “We want multi-layered relationships with partners from all over the world.”

Minsheng expects the number of business aircraft registered in Greater China (that is, “mainland” China and Hong Kong and Macau) to reach around 170 by year-end. But rival finance group ICBC Leasing believes that, factoring in pre-owned aircraft sales this year, this total could well exceed 200.

Lack of infrastructure is commonly considered an obstacle to business aviation growth in this vast country. But Donal Boylan, director of Ireland-based consultancy Odyssey Aviation, told the conference that generally speaking airport infrastructure in China is “second to none.” What’s missing are peripheral facilities, such as FBOs, and the main reasons for this are a lack of experienced providers and insufficient customers–for the time being–to pay for them. “[China] certainly [has] a way to go [in providing business aviation facilities], but [it is] well ahead of India,” he concluded.

Having been based largely on cash transactions, the aircraft sales process in China is moving increasingly toward financing, according to Johnny Lau, head of ICBC Leasing’s aviation division. “Chinese customers are starting to see the advantages of lease financing,” he told the conference.

According to Aoife O’Sullivan, a partner with London aviation law firm Gates & Partners, the majority of deals that she gets involved with in China are cash transactions. “This is a big problem for financiers because they need to prove that debt is a better option,” she said. “In a couple of cases customers got bored of the requirements associated with getting the finance. They felt they were being asked too many questions.”

O’Sullivan explained that Chinese legal documents tend to be substantially shorter than those in many Western countries. She warned that Chinese clients don’t like having their time wasted in dealing with what they perceive to be long-winded, pedantic documents.

The attorney, who has considerable experience putting together business jet deals around the world, said that there is no reason for Westerners to fear doing business in China. She said that concerns about the quality of operators and maintenance providers in the country are without foundation and added that the Chinese have also taken steps to overcome their bad reputation for flouting intellectual property rights.

“Chinese aviation regulators are good and they are strong so don’t try to fight them. Your records [for an aircraft] will have to be detailed,” she warned.

Lau acknowledged that the process of importing aircraft into China is by no means straightforward, in terms of fussy fiscal rules and perplexing bureaucracy. It is for this reason that his part of ICBC Leasing has set up shop in the tax-free zone at Tianjin in northern China, where its customers’ aircraft can enter the country more smoothly via companies specially established to hold ownership of the asset. “Through Tianjin we can get an aircraft imported in half a day, but before it could easily have been sitting there [at the point of entry into China] for more than a week,” he explained.

One factor constraining the availability of finance to support Chinese purchases of business aircraft is the Chinese government’s controversial policy of artificially suppressing the value of China’s renminbi currency to boost the country’s exports. ICBC’s Lau said that Chinese banks have to work with their foreign counterparts to ensure access to dollar liquidity for their clients. Minsheng’s general manager for aviation leasing, He Min, added that there is a worthwhile role for international banks in helping to arrange export credits to support aircraft coming into China from the West. –C.A.


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