Eastern Europe

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”.

Express Luck Industrial, a manufacturer of high-technology TVs founded and headquartered in Shenzhen, ships its products to various parts of the globe. The firm has offices in different places, from Hong Kong to Hungary to Mexico. Among these branches, the one in Hong Kong plays a pivotal role in central management and raising capital for the company.

One of the major markets for Express Luck’s products is Central and Eastern Europe (CEE). A few years ago, the firm started to manufacture TV sets in Romania and shipped the finished goods directly to different parts of the region, helping Express Luck enhance operational efficiency.

Then in the first half of 2016, Express Luck chanced upon an opportunity for growth in CEE: a global electronic company was looking for a buyer to take over its production plant in an industrial area on the outskirt of Budapest, Hungary. It was an attractive offer because the plant is well-located and well-equipped, and only slight moderation of the existing facilities was needed to ensure compatibility with Express Luck’s production activity. Express Luck bought it without much hesitation.

In the process of setting up the plant, the Hong Kong office of Express Luck played a leading role in management matters, including financial planning and devising business strategies for the plant.

Terry Tam, Chief Financial Officer of the Hong Kong office of Express Luck, says the plant, launched into operation in October 2016, now produces LED TVs for the company’s own brands and some other licensed brands. In 2016, Express Luck exported a total of five million TV sets. It expects the plant in Hungary to produce 600,000 sets for the year 2017 – about one-tenth of the aggregate output of the whole company – and more in the years to come, given the great growth potential of the CEE market.

Express Luck is not alone in its optimistic projections of CEE. Over the past decade, Chinese investment in CEE has been growing by 32 per cent annually. In 2016, China set up a 10 billion-euro investment fund to finance projects in the region. In pushing its Belt and Road Initiative, China has also enlisted CEE as a strategic partner.

As Chinese interest in the region continues to grow, CEE countries are also making an effort to promote closer economic ties with China. Hungary, China’s biggest investment destination in CEE, is in particular responsive to the Belt and Road Initiative. In June 2015, it became the first EU member to sign a memorandum of understanding with China on integrating its “Eastern Opening” policy with the Belt and Road Initiative. In May 2017, the two countries announced the establishment of a comprehensive strategic partnership.

According to Tam, the advantages of investing in Hungary are plenty, including the “availability of skilled workers, established infrastructure and supportive government policies”. He believes the Belt and Road Initiative will raise the living standard of people in the CEE and therefore drive up demand for consumer products such as TVs.

“Demand for TVs in Eastern Europe is already on the rise. Many people still have an old model TV at home and they want to switch to inexpensive LED TVs. The Belt and Road Initiative should help push the demand further as it will bring more growth opportunities to the region. When that happens, we may expand our operation there,” Tam says.

Meanwhile, Express Luck is gradually expanding its Hong Kong operation to cope with the company’s growth at home and abroad. The branch moved to a bigger office in April 2017 and is positioned as a second headquarters. According to Tam, as Express Luck’s business is expanding in CEE, the Hong Kong operation is expected to play a bigger role in helping to raise capital, given that the city is a “world-class financing platform” offering different means for companies to raise funds.

With its geographical advantage and a sophisticated financial system, Hong Kong demonstrates through Express Luck’s story what added value it can offer to Chinese companies seeking to build up a presence in countries along the Belt and Road.

Belt and Road: Turkey’s Logistics Link with Hong Kong 

Turkey-based Barsan Global Logistics is using its Belt and Road connections to reduce cargo transit times from Hong Kong to Turkey by more than half, according to Director Ebru Busra Tunca. It’s 35 global branches keep integrated operations running smoothly while Hong Kong acts a super connector for Asia.  

Speaker:
Ebru Busra Tunca, Director, Barsan Global Logistics (HK) Ltd

Related Links:
Hong Kong Trade Development Council
http://www.hktdc.com

HKTDC Belt and Road Portal
http://beltandroad.hktdc.com/en/