China Aircraft Leasing Group Holdings Ltd – Enhancing air links between Belt and Road countries

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”.