Aircraft Leasing Companies Reassess China Exposure Amid Geopolitical Tensions and Losses
Global aircraft leasing firms are reconsidering their risk exposure in China in light of heightened tensions with the United States and significant losses incurred due to the grounding of aircraft in sanctions-affected Russia.
Some international lessors have already started reducing their presence in China, according to industry executives and analysts. Factors such as friction between the US and China and uncertainties surrounding Taiwan’s geopolitical situation are contributing to these concerns.
China is recognized as the world’s largest market for airline lessors, with approximately 20% of their global portfolios leased to operators within the country, according to aviation consultancy Cirium. Despite recent developments, it is expected to remain a critical market for the aviation industry.
Eddy Pieniazek, Head of Advisory at aviation consultancy Ishka, notes that Western lessors may be initiating a trend to reduce their exposure to China. He emphasizes the risk posed by the potential for conflict across the Taiwan Strait, which could jeopardize numerous aircraft assets, similar to the situation in Russia where Western lessors faced significant challenges.
The aircraft leasing industry’s experience in Russia during the 2022 Ukraine invasion prompted some lessors to reconsider their exposure to China. For instance, Los Angeles-based Air Lease Corporation, one of the world’s largest aircraft lessors, reduced its Chinese portfolio share from about 20% to approximately 7% over the past five years.
Air Lease Corporation faced substantial losses when it was forced to write off more than two dozen aircraft detained in sanctions-affected Russia, costing over $800 million. The company is still pursuing ways to recover these losses, including insurance claims and litigation.
Steven Udvar-Házy, Executive Chair of Air Lease, mentioned that they closely monitor China and are in the process of selling some of their Chinese assets to local leasing companies. They aim to have about 4-5% of their total portfolio in China.
Similarly, Dublin-based Avolon, which owns over 520 jets, reduced its China exposure from 13.4% of its total portfolio at the end of 2019 to 9.5% as of September this year.
While some Western lessors are scaling back their presence in China, others like Dublin-based AerCap and SMBC Aviation Capital have expanded their portfolios in the country. AerCap, which owns over 1,800 aircraft, increased its Chinese exposure from approximately 13% in 2019 to nearly 17% recently.
BOC Aviation, a state-backed lessor mainly owned by the Bank of China, with over 400 planes, remains hopeful about growing its market share in China. They attribute the decrease in the proportion of their fleet leased to Chinese airlines over the past five years to the temporary closure and contraction of the Chinese market, while other regions expanded.
Despite some Western lessors reassessing their presence in China, Chinese aircraft lessors have been gaining market share, accounting for about 52% of the total 922 leased planes in China, compared to 48% in 2020, as per Cirium’s analysis.
China’s domestic flight demand has remained robust this year, despite an economic slowdown. However, the recovery of international routes has lagged behind other regions. Analysts believe that the long-term opportunities for aircraft lessors in China remain optimistic, as demand for aircraft in the country remains strong and cannot be solely met by Chinese lessors.
Herman Tse, Valuations Manager at Cirium, sees foreign lessors leveraging their extensive experience in aircraft leasing to capitalize on these opportunities.
Sources: AirGuide Business airguide.info, bing.com, ft.com