Finance -Leasing Executive
By Ann Keeton
Of DOW JONES NEWSWIRES
Chinese banks are expected to expand from backing aircraft deals for domestic carriers into a more global role, according to the head of one of the world's largest plane leasing companies.
Klaus Heinemann, chief executive of AerCap Holdings NV (AER), expects Chinese banks--flush with dollar reserves--to first back leasing companies and then move on to fund Asian carriers.
The expansion of Chinese financing would help fill a void left by the exit of many U.S. and European banks from backing multi-million dollar plane deals. As well, many capital-market structures have closed during the credit crunch.
Airlines and lessors have been left with a shrinking band of European banks and new entrants from the Middle East to finance aircraft, together with more support from manufacturers and government export credit agencies.
"China has easy access to U.S. dollars," said Heinemann in an interview, noting this could be used to buy aircraft, or for other collateral financing. "Once China decides to make a move, it tends to act decisively."
AerCap last week said it had raised $358 million from China Development Bank to fund four upcoming Airbus A330 deliveries.
While the aircraft are destined for long-term leases to Chinese carriers, AerCap said the funding could in theory be directed at planes flying for other airlines.
"We're very happy to be working with such a heavy hitter--but this didn't happen overnight," Heinemann said.
Chinese banks such as Bank of China and ICBC have focused on working directly in their fast-growing domestic airline market, though the former has a Singapore-based international leasing arm.
Heinemann believes China will take a "significant role" in the global market, highlighting possible initial forays into South Korea, Japan or India.
The credit freeze also has held up the sale of several large aircraft leasing businesses, including the ILFC unit of American International Group Inc. (AIG) and CIT Group's (CIT) transport arm.
"A number of private equity investors have been sniffing around," and are likely to make deals as the debt market thaws in coming months, Heinemann said. "The leasing businesses are strong, it's just a matter of getting the financing."
AerCap, which recently agreed to merge with competitor Genesis Lease, has a full plate for the next 12 months, expecting to take delivery on $2 billion of new aircraft, which will expand its fleet by 20%. But Heinemann said "that doesn't mean we're not looking over our shoulder" for other acquisition opportunities.
During a conference call last week, Heinemann said he expects the airline industry to add seat capacity next summer.
"Already we're seeing moderate to good growth among low-cost airlines in Europe and the U.S., and that will begin to spill over into other airlines," he said on Monday, adding that there are also signs that passenger traffic is recovering on hard-hit transatlantic and transpacific routes.
"As well, the U.S. capital markets are opening up. Some recent bond sales at U.S. airlines show very keenly how that market is coming back."
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