BOC Aviation, Bank of China Ltd's aircraft-leasing unit, aims to buy up to US$2 billion worth of planes that airlines have ordered and are unable to finance with bank loans because of the global credit squeeze.
Asia's biggest lessor plans to more than double aircraft purchases from airlines next year from the US$700 million it bought in 2007, according to Chief Executive Officer Robert Martin yesterday.
The Singapore-based company received a US$1-billion credit facility, its largest loan, from Bank of China this month at a rate lower than it would get from other banks, he said.
"With issues that are hitting financiers in Europe and US related to subprime, we are now seeing a slowing down of liquidity growth in Asia as well," Martin said yesterday, according to Bloomberg News. "With a financing market that is going to be tighter, this is the right time for us to go back to the sale and leaseback market."
A surge in borrowing costs that prompted the US Federal Reserve and four other central banks to add cash to the financial system has squeezed airlines. Record fuel prices and a possible slowdown in the US has made sale-and-leaseback arrangements more attractive to carriers to finance new planes.
The global market for leased aircraft will be worth US$144 billion by 2008, from US$115 billion in 2004, according to Frost & Sullivan, a New York-based research company.
About half of BOC Aviation's business comes from sale and leaseback agreements, with the remainder from direct leases. Next year, it aims to spend 80 percent of its marketing efforts on getting new sale-and-leaseback agreements, Martin said, backed by the credit line from the Bank of China and US$500 million of unused bank loans. The unit is not publicly traded anywhere.
"Sale and leasebacks are pretty good because you get your money back from the lease and a profit," said Jim Eckes, managing director of Indoswiss Aviation. "It benefits the airline because they don't have to borrow expensively from the bank."
Borrowing costs jumped in mid-August as banks, including Bear Stearns Cos and Merrill Lynch & Co, started reporting losses on securities tied to US subprime mortgages. | |