Asian banks and leasing companies are muscling in on the region’s booming aviation finance business, battling for the first time with European and US lenders for a slice of a hotly contested market as Asia’s airlines place record orders for aircraft.
The development signals a shift in the balance of power in the once-sleepy corner of finance that was previously the domain of western banks and leasing companies.
It also has created the most competitive conditions in aviation finance since before the 2008 crisis, squeezing margins for lenders.
“There is new interest [in the business]. You see Chinese banks but also Australian banks that were not there. In Malaysia and Korea, banks are also looking at it, even in Thailand. It’s quite competitive,” said Jean-François Lascombe, Singapore-based deputy head of aircraft export and infrastructure finance at Natixis, the French bank.
All that interest has “clearly pushed margins down”, he added.
Last week’s Singapore Air Show, Asia’s largest, produced more than $30bn in sales and leasing deals including a $9bn agreement by VietJetAir to buy 63 Airbus aircraft, partly financed by China Construction Bank.
Japanese lenders such as Development Bank of Japan and SMBC Aviation Capital, part of Sumitomo Mitsui Banking Corporation, are also pushing into the market after years of relative inactivity, bankers say.
“They [the Japanese banks] are coming back. It’s very obvious to us when we bring them in our deals,” said Nicolas Parrot, co-head of the transportation sector at BNP Paribas, the French bank.
The bulk of leasing and financing activity in Asia is increasingly being done out of Singapore, which has lured banks and leasing companies, especially from China, with tax incentives.
Natixis last year moved its regional headquarters for aviation finance from Hong Kong to Singapore, following a similar shift in 2011 by Avolon, an Ireland-based aviation finance company in which GIC Private Limited, Singapore’s sovereign wealth fund, has a 20 per cent stake.
Growth is also being driven by the emergence of liquid bond funding for aircraft purchase by leasing companies, especially the emergence of a renminbi-denominated bond market that lessors are increasingly tapping to finance aircraft purchases.
BOC Aviation, Bank of China’s aircraft leasing unit, on Wednesday priced the first 10-year offshore renminbi-denominated bond to be issued by an aircraft operating lessor.
The company’s Rmb300m ($49m) private placement was arranged by DBS, Singapore’s largest bank by assets, which says it has “stepped up lending in this [aviation finance] space” in 2011 following the retreat of European banks from Asia in the wake of the financial crisis.
Simon Perkins, Singapore-based global head of aviation finance at Standard Chartered, said that with lenders’ margins under such pressure, there were signs that could change this year: it is so competitive now that “we may be hitting a floor”.
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