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China Aircraft Leasing Group Holdings Ltd (CALC), an aircraft operating lessor founded in Hong Kong, specialises in providing aircraft full-life solutions, such as aircraft leasing, purchase and leaseback, structured financing to airlines around the world. It also provides value-added services including fleet planning, fleet upgrade and aircraft recycling. In a dynamic market that has been gaining traction year after year, CALC is one of the market players that stand to benefit from the boom. Today, the company has grown to become China’s largest independent aircraft operating lessor, Asia’s first large-scale aircraft recycling facility operator, and one of the top 10 global aircraft lessors in terms of the combined asset value of its fleet and orders placed. Its global presence is continuing to expand.
CALC’s business is mainly divided into two areas: CALC itself is responsible for the leasing of new aircraft; its member company, Aircraft Recycling International (ARI), focuses on the disassembling and recycling of used aircraft and spare parts supply. This unique business model means the company’s services cover an aircraft’s full life cycle – from its days as a new plane to the time it comes to the end of its lifespan. As the first full value-chain aircraft solutions provider in Asia, CALC currently owns and manages 130 aircraft in its fleet and is on track to expand its fleet to more than 300 by year 2023.
Over the past three decades, the aviation leasing industry has been growing at a remarkable speed as more and more airlines prefer to lease, rather than own, their aircraft for operation flexibility and efficiency. The outlook for the industry has become even more positive in recent years, with low interest rates and surging demand for air travel providing strong tailwinds. Amid the boom, CALC launched in 2014 a “globalisation strategy” aimed to carve out a global presence for the company. In less than two years, CALC’s clientele expanded to include airlines in Asia Pacific, Southeast Asia, Europe, Middle East and the United States, many of which are flag carriers or top-tier airlines in their markets.
The aircraft lessor first set its sights on Harbin, the pivot hub of the Longjiang Silk Road Economic Belt under the Belt and Road framework, which connects Eurasia with the Pacific and Baltic countries through a comprehensive land and sea transportation network. In 2014, CALC signed an agreement with the Harbin Municipal Government on the establishment of China’s first and largest aircraft disassembly project, the China Aircraft Disassembly Centre. The centre features an ageing aircraft material recycling system, which provides services to countries including those along the Belt and Road routes.
Also in 2014, CALC entered into leasing agreements with Air India – its first non-Chinese customer – for five new Airbus A320 aircraft. The first of the five planes was delivered during Indian Foreign Minister Sushma Swaraj's trip to China in February 2015.
As the “Aviation Silk Road” continued to gather momentum, CALC expanded its reach into more and more Belt and Road countries. In 2016, it delivered two new Airbus A320 aircraft to Pegasus Airlines, Turkey’s leading low-cost carrier, and four Airbus A320 aircraft to Jetstar Pacific, Vietnam’s first low-cost carrier. In 2017, CALC continued to deliver aircraft to airlines in various parts of the world, including in Russia, one of the largest markets on the Belt and Road.
Currently, aviation is one of the key areas of focus of the Belt and Road Initiative. As of the end of December 2016, China had signed bilateral air transportation agreements with 120 countries and regions. Mike Poon, Chief Executive Officer of CALC, said CALC sees great growth opportunities arising from the Belt and Road Initiative.
“In China, demand for domestic and international air transport services, including different aviation financial services, is growing rapidly. Meanwhile, many Belt and Road countries are emerging economies with an underdeveloped aviation sector. We believe our growth potential is high since we are the first-mover in the industry and one of the few operators that provide full value-chain aircraft solutions and value-added services to our clients around the world,” Poon said.
That is not to say there is no challenge. As with many other cross-border industries, the aircraft lessor sector is exposed to different operational risks, including political instability, credit risk and interconnectivity risk. To counter the risks, which are not unusual in Belt and Road countries, CALC relies on its own professional team with substantial experience in global financing and a comprehensive risk management system. This enables the company, which is listed on the Hong Kong Stock Exchange, to keep risks under control when expanding internationally.
According to Poon, in its continued effort to expand its international presence, CALC, being a Hong Kong company, also enjoys a diversity of advantages that the city offers. They include an open economy, the city’s sophisticated banking and financial sector, the common law system, and Hong Kong’s role as a facilitator of Belt and Road opportunities. In addition, the Hong Kong government’s move last year to grant aircraft leasing tax concessions to qualifying lessors has taken the city a step towards establishing itself as an international aircraft leasing hub. All these local advantages stand CALC in good stead, enabling it to grow fast and in the right direction while playing an effective role in building the “Aviation Silk Road”.
Closer mainland-Saudi Arabia links, as well as fuel independence for southwest China, attributed to BRI.
As 2017 drew to a close, Amin Nasser, the Chief Executive of Aramco, the state-owned Saudi Arabian oil giant, confirmed that the company's discussions with PetroChina, the largest oil producer on the mainland, were now at an advanced stage. Should terms be agreed, Dhahran-headquartered Aramco will secure a 30%+ stake in PetroChina's Anning refinery. Located in the southwestern Yunnan province, the refinery – one of China's largest oil-processing facilities – came on line in October last year and currently has a throughput capacity of 260,000 barrels per day (bpd).
At present, the Anning facility solely focuses on supplying local needs. In the longer term, however, it is seen as having an intrinsic role to play in meeting China's future energy demands, with the country estimated to require at least 2.2 million bpd of refining capacity by 2022. In addition to its throughput, however, the site is also seen as having considerable strategic importance.
Set close to the Myanmar border, the refinery is in line for a key role in the Belt and Road Initiative (BRI), China's ambitious international infrastructure development and trade facilitation programme. More specifically, it is expected to help close the development gap between China's megacities and its underdeveloped eastern and western states, while improving China's "connectivity" with the rest of the world – two of the BRI's primary objectives.
The Anning facility is supplied by the Shwe oil and gas pipelines, which stretch back to the western Myanmar port of Kyaukpyu. With a total length of 770km, the pipelines – jointly funded by the China Development Bank and the Myanmar Foreign Investment Bank – source from a nearby offshore natural gas field and the regular oil shipments arriving at the port. Overall, it is hoped this new arrangement will free southwest China from its reliance on slow and costly oil shipments from the Middle East and Africa, with all of its fuel requirements, instead, offloaded in Myanmar and then piped overland.
For many in China, the Shwe pipelines are seen as among the first fruits of the BRI. From the Saudi point of view, the arrangement also has a number of clear benefits. The investment in Anning – expected to be in the region of US$1-1.5 billion – is the cornerstone of the Kingdom's game plan when it comes to regaining the market share it lost to Russia, currently China's primary supplier of crude oil.
One of the key elements in Aramco's approach has been to strategically invest in a number of target refineries, with the quid pro quo being that these installations are then contractually tied into solely (or largely, at least) processing the company's crude. In line with this, PetroChina has already tacitly acknowledged that the deal will lead to an increase in the proportion of Saudi oil processed in Anning.
The deal also paves the way for more Sino-Saudi joint ventures, while also rebooting relations between the world's biggest oil exporter and the world's largest crude importer, with Saudi Arabia clearly keen to move things along as swiftly as possible. Indeed, addressing the likely legacy of the deal, Khalid al-Falih, Saudi Arabia's Energy Minister and the Chairman of Aramco, has gone on record as saying: "Our goal is to be not only the largest crude exporter to China, but also the largest in-market investor overall."
As a further sign of colliding mutual interest, PetroChina is said to be considering buying into Aramco via its massive initial public offering – possibly the world's largest – that is expected to take place later this year. Meanwhile, for its part, Aramco is believed to be eyeing other petrocarbon assets in China. These will be in addition to its existing agreement with the China North Industries Group (Norinco), one of the mainland's leading defence contractors, to build a new refinery and a chemicals complex in northeast China. It also holds a 25% stake in a Fujian-based refinery operated by Sinopec, another of China's oil and gas giants.
Geoff de Freitas, Special Correspondent, Riyadh
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Tax incentives and financing expertise for Belt and Road Initiative projects offer huge opportunities for Hong Kong as a treasury centre, says Paul She of global accounting and consultancy firm, Mazars. The firm is focusing on technology clients related to the Belt and Road – some for IPO launch on the Hong Kong Stock Exchange – companies “often missed by the market”.
Speaker:
Paul She, Practising Director, Mazars CPA Limited
Related Links:
Hong Kong Trade Development Council
http://www.hktdc.com
HKTDC Belt and Road Portal
http://beltandroad.hktdc.com/en/
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Hong Kong-based Branded, a live media company, increasingly holds festivals and other events in Belt and Road countries and CEO Jasper Donat sees the Initiative as enhancing business, while Hong Kong is an easy and entrepreneurial centre for operations. With many events like music and YouTube festivals in Southeast Asia, Branded has most recently initiated events in Jeddah, Saudi Arabia.
Speaker: Jasper Donat, Co-Founder & CEO, Branded
Related Links:
Hong Kong Trade Development Council
http://www.hktdc.com
HKTDC Belt and Road Portal
http://beltandroad.hktdc.com/en/
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Environmental protection is critical to China’s Belt and Road Initiative to parallel economic goals, says Steve Wong of Hong Kong’s BillionGroup Technologies. The firm develops solutions like waste-generated energy, solar power and industrial efficiency projects in Belt and Road locations including the Chinese mainland, Myanmar, Bangladesh, Indonesia and Dubai. He sees Hong Kong as an ideal location for green solutions to replicate in Belt and Road countries.
Speaker:
Prof. Ir Steve Wong, Managing Director, BillionGroup Technologies Ltd
Related Links:
Hong Kong Trade Development Council
http://www.hktdc.com
HKTDC Belt and Road Portal
http://beltandroad.hktdc.com/en
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The Netflix epic Marco Polo about the Silk Routes reflected Malaysia’s 500 years of history related to the Belt and Road Initiative, said Rezal Rahman of Pinewood Iskandar Malaysia Studios at FILMART 2017. Iranian producer and actor Alireza Shaja-Nuri and Singapore producer Lim Teck spoke of developing collaborations tapping Hong Kong talent while Norman Abdul Halim of Malaysia’s KRU Studios said Hong Kong’s “connector role” would help access larger movie markets.
Speakers:
Rezal Rahman, CEO, Pinewood Iskandar Malaysia Studios
Alireza Shaja-Nuri, Producer and Actor, Iran
Lim Teck, MD, Clover Films
Norman Abdul Halim, Executive Producer, KRU Studios
Related Links:
Hong Kong Trade Development Council
http://www.hktdc.com
HKTDC Belt and Road Portal
http://beltandroad.hktdc.com/en/
