BOC Aviation calls on its parent company to attack the rental market
BOC Aviation, one of the largest aircraft leasing companies, is appealing to parent company Bank of China for funds to help it grab a bigger share of the industry from several billions of dollars, as even the strongest airlines seek to raise funds by selling their jets.
Robert Martin, chief executive of the world’s fifth-largest lessor by value of aircraft owned, said BOC Aviation had begun drawing funds from a $2 billion “backstop” revolving credit facility, provided by the bank, for the first time since 2011.
The group last week also completed a $1 billion five-year bond issue, testing the market’s appetite for exposure to a sector struggling to survive the collapse of global air travel in the wake of the coronavirus pandemic. Prior to the bond issue, liquidity stood at $3.6 billion.
The Singapore-based company intended to move quickly to acquire aircraft “at good prices with long leases” of 12 to 16 years, Mr Martin said. He insisted the new funding was not because the group needed cash to cope with a flurry of rental deferral requests from its 90 airline customers.
“We are taking this opportunity to focus on the best airlines in the world. People with better credit who would have previously paid cash are now turning to people like us for financial support,” he said. he told the Financial Times “By the end of April, we will have achieved $5 billion in additional sales and leasebacks.”
Two weeks ago, BOC Aviation secured United Airlines, one of the world’s largest carriers, as a customer when it agreed to buy and immediately lease 22 of the airline’s planes.
The agreement, which concerns six twin-aisle 787s and 16 single-aisle 737 Max, is estimated at several billion dollars. In recent weeks, at the height of the pandemic, it has also entered into sale-leaseback transactions with Cathay Pacific and American Airlines.
BOC Aviation’s push comes as the aircraft leasing industry faces a severe squeeze on revenue and the threat of depreciating aircraft values due to the crisis. Avolon, the third-largest lessor by value of owned aircraft, said last month that 80% of its customers were looking for rental vacations.
Carriers such as Ryanair, British Airways and Lufthansa announced thousands of job cuts while Virgin Australia took office last month. Norwegian Air Shuttle plans debt-for-equity swap.
The crisis marks a sharp reversal of a decade of expansion in the aviation industry, which has fueled a boom in aircraft financing. According to Ascend by Cirium, the aviation consultancy, more than 100 new lessor-operators have entered the industry over the past decade.
New investors, such as pension funds and insurers, have been attracted by the higher and more stable returns offered by aircraft financing in the low interest rate environment of recent years. Strong demand for passenger aircraft has also made it easier to move planes from potentially struggling customers to new airlines, giving lessor lease flows an aura of security.
However, the global nature of the aviation crisis, with more than two-thirds of the world’s fleet in storage and several airlines seeking government bailouts, is making it harder to place planes with new customers. Additionally, leasing rates are expected to come under pressure as low oil prices reduce the need to upgrade to more efficient aircraft.