China's - Orient Aviation

SPECIAL REPORTAircraft Leasingestablish their own leasing companies. Theyare the nation’s largest banks, the Industrialand Commercial Bank of China (ICBC),the Bank of Communications, MinshengBanking Corporation and China MerchantsBank. It is understood the Minsheng leasingventure will be in partnership with Airbus.The fifth bank, the China ConstructionBank, is teaming up with Bank of Americain a proposed leasing venture.On its website ICBC said its leasingcompany, registered in Tianjin, will focus onaviation, shipping and other big equipmentleasing “for global and domestic clients”. Itadded: “The financial leasing company is animportant move in ICBC’s path on growingas a universal financial player.”Banks are not the only companiesshowing interest. Hainan Airlines recentlypurchased a stake in an existing firm, theShenzhen Financial Leasing Company. It isthe first airline to enter the leasing industry.It will focus on serving China’s fast emerginglow-cost carrier (LCC) sector.More moves are underway that willeventually resolve some of the issuesdomestic leasing firms face. The Financialand Economic Committee of the NationalPeople’s Congress is working on newlegislation aimed at reforming taxation laws.Legal regulations are also being reviewed.“Certainly, from what we see, thegovernment is working on it. The bestguestimate of where we can truly see itbeing competitive, before you changeimport and taxation restrictions and someof the regulatory rules, is probably anothertwo to three years,” said Townend.One thing everyone agreed upon: Chinahas to become a signatory to the CapeTown Treaty before the local industrycan seriously take off. The Cape TownConvention on International Interests inMobile Equipment is an international treatyagreed in 2001, intended to standardizetransactions involving moveable property,particularly aircraft and aircraft engines.It creates international standards forregistration of ownership, leases andconditional sales, contracts and various legalremedies for default in financial agreements,including repossession and the effect of aparticular state’s bankruptcy laws.“It will help in a number of ways, butparticularly to enable domestic lessors toaccess international financing. If they arecompeting against an ILFC or a GECAS,who are able to access some of the U.S.market capital structures, to be able tocompete effectively against them they needto be able to do the same thing. If Chinabecomes a signatory to Cape Town that willhappen,” said Townend.John Duffy, head of transportation Asiafor Germany’s HSH NordBank, agreed. “Thesooner that is ratified by China the better.That would be a great boon for the industry.“We have seen in markets such as Indonesiacont. on next page >Vietnam enters leasing marketChina isn’t the only Socialist nation striving toencourage growth of a local lease financingindustry, writes Tom BallantyneThe Vietnamese government has approved plans by thecountry’s Bank for Investment and Development ofVietnam (BIDV) to establish Vietnam Aircraft LeasingCompany (VALC). The move is seen as a significantstep towards liberalising the airline industry, which hasbeen growing at double-digit rates for several years.The news comes as two new local airlines – VietJet and SaigonAirlines – attempt to gain permission to enter Vietnam’s domesticmarket, currently dominated by national flag carrier VietnamAirlines (VNA) and Pacific Airlines, which is 18% owned byAustralia’s Qantas Airways.The new leasing company will initially have five shareholders,all state enterprises. BIDV will hold 20% with Vietnam Airlines,Vietnam Oil and Gas Group (PetroVietnam) and VietnamShipbuilding Industry Group (Vinashin) each holding more than10%. Phong Phu Corp, a leading textile producer, is expected toacquire around 8%. The group will consider bringing in strategicpartners at a later date.Under its proposed development plan, VALC will have at leastUS$200 million in capital in its first phase from 2007-14, increasingto $1 billion by 2025. It will deal in various aircraft from commercialjets to helicopters and cargo aircraft. The company plans to provideother aviation services, including asset management, insurance,maintenance and financial lending.VALC said it was negotiating with Airbus, Boeing and othermanufacturers to purchase planes and that its first major clientVietnam Airlines: one of five shareholders inVietnam’s first aviation leasing companywill be Vietnam Airlines. “We also expect, once the company isprofitable, VALC will join the stock market and make other long-terminvestments. The plan is not too ambitious,” BIDV general director,Tran Bac Ha, told local media.If VietJet and Saigon receive the go-ahead they will increase thenumber of airlines in Vietnam to six. Apart from Vietnam Airlinesand Pacific Airlines, expected to be renamed Jetstar Vietnam, Vascoand Vietnam Airlines Express, both owned and operated by VietnamAirlines, are flying. Vasco, or Vietnam Air Services Company,operates as an air taxi and cargo airline.Vietnam has become a magnet for regional low-cost carriers.Apart from the Qantas move to invest in Pacific Airlines (the stakewill grow to 30% in the next two years) and incorporate it into theJetstar group, Malaysia’s AirAsia, which already flies to Vietnam,is looking to invest in a Vietnamese operation. Tiger Airways fromSingapore and Lion Air from Indonesia also fly there and Thailand’sNok Air will launch services to Vietnam this month.60 ORIENT AVIATION NOVEMBER 2007