| As the aviation industry descends on Tianjin for this week’s China Air Finance Development Summit, IBA (International Bureau of Aviation) a leading aviation advisory firm, asserts that despite increasing volatility in the global aviation market, Chinese investors remain committed to additional investments.
But, IBA cautions, monitoring should be increased in order to avoid financial shock when assets are returned.
IBA, which supports a variety of Chinese entities on their investments across leasing, acquisition and integration strategies, says that despite signs that global lease rates are softening and airlines in numerous developing destinations are experiencing tightening margins, their findings indicate that Chinese investors’ commitment remains firm. However, whilst the outlook is still optimistic (only recently, Boeing have announced that Chinese airlines will purchase 6,810 aircraft over 20 years at a value of over a trillion dollars), IBA has noticed several trends in the market from its advisory work with lessors and investors which indicate that there are certain obstacles to watch out for.
In an environment of increasing volatility in the global aviation market, IBA cautions that it is critical to ensure that valuation and technical information supporting acquisition and finance is robust and accurate, and that investors and lessors increase their risk monitoring efforts. IBA advises that there are particular warning signs to monitor in any lessees which are a potential concern, including: financial results; key staff changes; route alterations, changes in maintenance and utilisation; impactful macro factors; order deferrals; and aircraft valuation/ lease rate changes.
In addition to this, with dozens of leased aircraft due to return over the next 24 months within China, IBA cautions that whilst lease extensions mitigate much of the risk around redeliveries, all will require careful planning in order to minimise the likelihood of unwanted parked aircraft or other unforeseen problems.
Lastly, in its work with less experienced lessors in respect of challenges around maintenance, IBA has identified that particular areas to monitor include ensuring that records are in English on domestic fleets, to analysing reserves for maintenance events and residual purposes, and driving fleet selection decisions.
David Yu, IBA’s Executive Director for Asia Operations, highlights: “We expect investment and trading to continue, both in acquiring and expansion of leasing platforms, and in other aviation assets. However, with global margins tightening over the last quarter, it is imperative that lessors ensure that they have their operations in order to avoid a financial shock when the asset is returned or divested.” |
