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Global aircraft leasing companies are reassessing their risk appetite for China amid heightened tensions with the US and in the wake of big losses following the grounding of planes in sanctions-hit Russia.
Some international lessors have begun to reduce their exposure to the country, industry executives and analysts said. Friction between the US and China, coupled with uncertainty over war risks surrounding Taiwan, were adding to wider concerns over geopolitical risk, they added.
China is the world’s single largest market for airline lessors, according to aviation consultancy Cirium, with almost 20 per cent of their global portfolio leased to operators within the country, and it is forecast to remain a critical market for the aviation industry.
But western lessors “may be at the start of a trend to de-risk” from China, said Eddy Pieniazek, head of advisory at aviation consultancy Ishka.
“The major risk is about whether there would be war in [the] coming few years” across the Taiwan Strait, which could put many aircraft assets at risk, said an executive from a major aviation leasing company. “If you look at Russia, the aircraft got detained in Russia . . . that could also happen in China if the same sanctions [are] imposed on China.”
Hundreds of planes owned by Western aircraft leasing companies were stranded in Russia after its invasion of Ukraine in 2022. Many lessors are still embroiled in legal disputes with insurers over billions of dollars of claims.
Aircraft leasing companies’ experience in Russia “probably alerted some lessors to review or reconsider their exposure concentrations”, including that of China, Pieniazek added.
Los Angeles-based Air Lease Corporation, one of the world’s biggest aircraft lessors, owning about 448 planes and with a fleet net book value of $25.6bn, said it has over the past five years reduced the share of its portfolio in China from about 20 per cent to about 7 per cent as of September this year.
The lessor last year was forced to write off more than two dozen aircraft detained in sanctions-hit Russia at a cost of $802mn. It said it was still looking for ways to recover losses including through insurance claims and litigation.
Steven Udvar-Házy, Air Lease executive chair, told an investor conference in September that the company watches China “very closely”. “We’re in the process of selling a number of our Chinese assets to other Chinese leasing companies,” he said. Air Lease, he added, aimed to have “about 4-5 per cent” of its total portfolio in China.
Another major aviation lessor, Dublin-based Avolon, which owns a fleet of more than 520 jets, has reduced its China exposure from 13.4 per cent of its total portfolio at the end of 2019 to 9.5 per cent in September this year.
The lessor, which counts China’s Bohai Leasing and Japanese financial services group Orix as its owners, had to write off $304mn last year as 10 of its planes were stuck in Russia. Avolon declined to comment on the reasons behind its decision to lower its China exposure.
However others, including Dublin-based AerCap and SMBC Aviation Capital, have in recent years expanded their portfolios in China, according to Cirium data.
AerCap, which owns more than 1,800 aircraft, grew its Chinese exposure from about 13 per cent of its portfolio in 2019 to nearly 17 per cent last month, Ishka data showed. AerCap declined to comment.
BOC Aviation, a state-backed lessor majority owned by the Bank of China, which owns more than 400 planes, said it still hopes to grow its market share in China. The Singapore-based lessor added that although the proportion of its fleet leased to Chinese airlines over the past five years was down, it was “largely due to the fact that the Chinese market was closed and shrank . . . while other jurisdictions grew”.
As some western lessors reassess their presence in China, the market share from Chinese aircraft lessors has increased and now stands at around 52 per cent of a total of 922 leased planes in China, compared to 48 per cent of 690 planes in 2020, according to Cirium’s analysis.
China’s domestic flight demand has remained strong this year despite the economic slowdown, but the resumption of international routes still lags behind many peers. China has not yet been “firing on all cylinders with respect to traffic recovery” after the reopening, said Ishka’s Pieniazek.
But analysts still believe that the long-term opportunity in China for aircraft lessors remains optimistic. “The demand for aircraft in China remains strong and cannot be solely met by Chinese lessors,” said Herman Tse, valuations manager at Cirium. “This creates opportunities for foreign lessors, leveraging their extensive experience in aircraft leasing.”
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