Financing takes flight
Demand for experts in leasing and selling aircraft set to boom as passengers proliferate in Asia, writes Wong Yat-hei.
While air traffic has grown steadily on a global scale since the financial crisis, in Asia it is rising much faster. According to a report released last year by aviation technology company Amadeus, air traffic in Asia rose 9 per cent in Asia from 2011 to 2012 – higher than any other region. The figure was buoyed by the region’s developing economies such as Indonesia, where air traffic grew 22 per cent, the Philippines (14 per cent) and China (10 per cent).
Despite improving infrastructure and better service, one sector of the industry that remains largely undeveloped in Asia is aircraft financing. Long the stronghold of Western banks and specialist firms, the sector has traditionally been small in the region. In recent years, however, this has begun to change as businesses see Asia’s air travel potential. In turn, this has led to greater demand for finance professionals skilled in the area of buying and leasing aircraft.
China Aircraft Leasing Group (CALC) was set up in 2006 by Hong Kong entrepreneur Mike Poon Ho-man to compete with Western aircraft financing companies in Asia. “He decided to start the business because he was disappointed by the fact that, of all the planes in the air, none belonged to Chinese people,” says Winnie Liu Wan-ting, senior vice-president and executive director of CALC.
She says aircraft financing is a new sector, not only in Hong Kong, but in Asia. “We are one of the first firms in Asia to get involved in aircraft leasing. Our business is fast-growing – we bought our first five planes in 2008 and since then we have aggressively expanded our fleet. We own 40 aircraft and plan to have 64 by 2016. And we listed on the Hong Kong stock exchange in July.”
CALC is capitalising on the surge of new airlines in Asia. “The mainland is one of the fastest-growing markets for air travel,” Liu says. “The number of passengers on the mainland grew from about 88 million in 2003 to more than 354 million in 2013. The US had 17.3 passenger aircraft per one million people last year, compared to 1.5 per million on the mainland.
“The potential for the aircraft leasing market is undeniable; the mainland will need more planes in the future,” Liu says.
Many airlines look to rent rather than buy aircraft. “Airlines want to focus on providing services. Many have chosen to rent planes rather than running a fleet on their own, providing lots of opportunities for aircraft finance companies,” Liu says.
However, it is not easy to recruit aviation finance professionals in Hong Kong because it is such a new sector.
“Work in aviation financing is demanding because we have to deal with many stakeholders and complicated situations. People who are interested in joining the industry should expect to learn a lot about aviation,” Liu says.
Many skills used in the finance industry, such as analytical and risk management proficiency, are in demand in aircraft financing, but having the knowledge alone is not enough.
“We are looking to recruit people with the right attitude, rather than those with a relevant skill set,” Liu says. “Many financial skills are transferable, but most aviation-related knowledge needs to be learned on the job. The key to success is having an open mind and being innovative.
“We are a new industry that is growing rapidly – one needs to be able to adapt to changes quickly to thrive. The financial products we create for clients are extremely flexible and we take pride in thinking out of the box to tailor-make products that best suit our clients.”
A plane can be in service for more than 30 years and aviation finance can help get the most out of it throughout this period. “There are a lot of things we can do with planes financially, like issuing bonds and financing. There is also a very active second-hand market for planes and plane parts,” Liu says.
There are a number of stakeholders to work with, so it is important to be a willing learner and a strong communicator. “Starting with purchasing and leasing planes, we need to deal with plane manufacturers and airlines. The manufacturers are Western companies and most of the airlines we serve are from the mainland, so one needs to be aware of the cultural differences,” Liu says.
“Tax and legal are complicated issues in trading planes. Fleet planning is another mind-boggler. Planes take at least a year to produce and we need to forecast the demand for planes a few years in advance.”
As most of CALC’s clients are mainland airlines, the company also maintains close contact with the government, lobbying them to put forward tax polices that are friendly to the trading of planes. It also works with an engineering team, which checks the condition of planes when they are delivered from the manufacturer and when airlines return them.
As is it difficult to find people with experience in the industry, CALC has a proactive approach to training. “Our aim is to nurture our own talent. We describe our company as a Shaolin temple that trains talent in aviation finance. We host seminars regularly to let more people know about the industry. People working in banks, financial institutions and airlines are our main targets.”
She adds that going forward, the local aircraft finance sector needs to expand its services outside of buying and leasing planes. “The bigger goal for us is to provide aircraft finance solutions to airlines. For example, we recently helped a client to enhance its fleet with new planes and by getting the most out of three old aircraft it no longer wanted to fly. We add value to our services, on top of renting planes.”
Hong Kong has the potential to be an aircraft leasing hub with rich talent in the financial sector and an extremely active air travel market, she says. “The Hong Kong government has been in discussions with us about developing the city into an aircraft leasing hub. That is still a work in progress, but I believe it can be achieved.” she says.
Con Korfiatis, partner in Heidrick & Struggles’ Singapore industrial practice and an aviation specialist, says that the growing number of new airlines adds to the demand for financing. “In the past, airlines liked to take ownership of their aircraft,” Korfiatis says. “Nowadays, all airlines, including start-up airlines, are focused on moving away from capital-intensive aircraft ownership to a financing model.”
He says major growth in the market in the next 20 years will boost the aviation finance industry. “There are so many new airlines, as well as existing airlines placing large orders for aircraft. Globally, there are a lot of specialist aviation financing companies and aviation business units in banks looking for talent in the sector.
“An aircraft is an asset, so people with experience in asset management will be in demand. Knowledge of risk management is also important as finance companies need to be able to identify trustworthy clients.”
Engineers are also in demand. “Aircraft leasing companies value engineers who can ensure their aircraft are being well looked after by the customers and to prepare the aircraft for customers,” he says.