6 February 2014

Who's Who Legal interviews Berend Crans on trends in aviation finance

Order backlogs for new aircraft are at record high, but at a time when the traditional aviation banks are still under pressure. Have the leading aviation finance practitioners seen an increase in the number of players from the East? Which types of investors are attracted to the aviation market? Who's Who Legal brought together three of the leading aviation finance practitioners in the world to discuss key issues facing lawyers today. Berend Crans is one of them and explains: "It would indeed appear that a number of players from Asia, and in particular China, are increasingly active in the market. Leasing companies like Dragon Aviation Leasing (which is owned by China Aviation Supplies Holding Company (50 per cent), Aercap B.V. (20.5 per cent), CA-CIB Airfinance S.A (20.5 per cent) and East Epoch Limited (99 per cent), China Financial Leasing Group, Bank of Communications Finance Leasing (BOCOM) and Hong Kong-based China Aircraft Leasing Company Limited (CALC), which in January 2013 signed a purchase agreement with Airbus for 28 A320 and eight A321 aircraft are showing their strength".
Crans continues: "In February 2013 CALC announced its intention to obtain a listing in Hong Kong to “cater for our bold expansion plans”. Although CALC’s current customers are primarily Chinese carriers, such expansion may entail that CALC will also look for customers in other regions. In 2011 BOCOM signed a purchase agreement for 30 C919 aircraft with the Commercial Aircraft Corporation of China. BOCOM also recently acquired aircraft on lease to European carriers from other lessors. Following the entry into force of the 2011 Aircraft Sector Understanding and the inherent substantially increased costs of ECA supported transactions, commercial lenders may be in a position to offer funding at better margins. Their lending capacity may, however, be restricted because of Basle III requirements and other solvency rules. This may open the door to new structures, with funds provided by pensions funds, insurers or through debt capital market instruments". There are concerns that the growing demand for new aircraft will have implications for the residual pricing of current aircraft. Do you expect this to have an adverse impact or to provide opportunities for investors to pick up mid-life to older aircraft? Berend Crans: "A growing demand for new aircraft does not necessarily mean that values of current aircraft will be adversely affected. Much will depend on the traffic growth and the speed with which new aircraft deliveries can be effected. Boeing’s 2013 forecast indicates that by 2032, 85 per cent of the global fleet will consist of new aircraft, ie, aircraft delivered after 2013. Obviously, factors like higher operating costs and customer preferences will also play a role in out phasing older aircraft and may expedite the putting in operation of new, more economic, cleaner and more appealing aircraft. Still, mid-life to older aircraft could be attractive to investors and operators in regions where low-cost-carriers are yet to gain market share". Berend Crans has been named one of the 'Most Highly Regarded Individuals' in aviation law, by Who's Who Legal 2014. Click here to read the full article. Source: Who's Who Legal