Minsheng Leads The Way in China’s Business Jet Finance Boom
It came as no surprise to industry watchers that Minsheng Financial Leasing Co. Ltd. (MSFL) won the recent Corporate Jet Investor (CJI) award for Asian Business Jet Financier of the Year. MSFL has so far signed agreements for, and placed nonrefundable deposits on, more than 100 private aircraft acquisitions in China. The firm’s total registered capital is RMB five billion ($790 million). By the end of June 2011, the company’s total assets had mounted up to 53.5 billion RMB ($8.5 billion) without any nonperforming assets, with total investments approaching 70 billion RMB ($11 billion).
The CJI voting panel was made up of executives who see the most transactions in the market–being drawn from manufacturers, pre-owned aircraft brokers and experienced financiers. “We have had an extremely busy year and everyone wants to talk to us here,” Minsheng CFO Rong Wang said at the awards ceremony in London last month. “We believe that we will see a situation in future when more than 70 percent of new aircraft coming into China will be financed.”
Bringing business aircraft into China is not an easy prospect. Banks need to apply for permission to finance in dollars, with the available amount dependent on the institution’s size. In addition, the Civil Aviation Authority of China (CAAC) restricts imports to aircraft that are less than 10 years old and with no more than three previous owners. It is apparently much easier to export aircraft that have been on the U.S. Federal Aviation Administration register from delivery (N-registered).
All business jet operations in China must be conducted under a CAAC-issued air operator’s certificate (AOC) regardless of whether the flight is for commercial or private purposes, so not surprisingly, the number of AOC applications has risen significantly in the past year.
Founded in April 2008 by China Minsheng Banking Corp. (CMBC) and Tianjin Port Free Trade Zone Investment Co., MSFL was one of the first five Chinese financial leasing companies with banking backgrounds approved by the China Banking Regulatory Commission (CBRC). This put the firm on the global map by signaling that it is authorized to operate aircraft financial leasing services in accordance with international practices.
The AAA-rated company also owns the largest market share in both the corporate jets and sea-going vessel sectors in China. MSFL has built a diversified financing system with strong support from more than 30 domestic banks, including the Industrial and Commercial Bank of China, Bank of China and Agricultural Bank of China.
Orders One Hundred Jets
By early this year MFSL (Booth H602) had placed nonrefundable deposits on more than 100 business jets in investments well over RMB 1.3 billion (over $200 million). It had also entered into strategic agreements with all the leading business jet manufacturers, including Gulfstream, Bombardier, Hawker Beechcraft, Dassault, Embraer and Cessna.
It has signed for Gulfstream G550 and G450, Bombardier Global 6000, Hawker 900 and 4000, and the Dassault Falcon 7X, among other models. Almost all of these jets will be leased to domestic customers. MSFL believes its business jet fleet will reach 130 aircraft this year, along with a further 15 to 20 helicopters, resulting in a total annual investment of over RMB 10 billion ($1.6 billion).
The company’s service is divided into aircraft leasing and charter leasing–that is, financial leasing and operating leasing. “With aircraft leasing, we also provide a set of professional services, such as acquisition consultation, or act as purchasing agents and aircraft management consultants,” said Wang. “We also offer asset management and residual disposal should the customer require it.”
In 2010 Minsheng bought its own Gulfstream G450, which is based in Tianjin at one of China’s free trade zones, where companies can defer duties into installments based on the rent paid to the lessor. The compound duty of import tariff and value-added tax for business aircraft can be as high as 22.85 percent, and basing aircraft in such zones is the only way to obtain tax relief legally in China at present. Aircraft on China’s B-register can amortize import tax over the course of leases. Many of the leasing companies are also established in free tax zones.
Leasing is becoming big business in China. “We had over ten leasing companies at our conference in Beijing last year,” said Alasdair Whyte, CJI’s CEO. According to the company, China will be the fastest growing business jet market in the world for at least the next 10 years. Bombardier forecasts that over 600 new aircraft will be delivered into the country during that time. Minsheng puts that figure at over 700 aircraft.
“Most of the first Mainland-registered aircraft were financed through cash or credit-based bank loans,” Whyte continued. However, in 2010 China’s new leasing companies financed their first deals and more lessors are looking at business aircraft, he said. “It looks like there is strong market potential given that Forbes’ Rich List recently estimated that in 2010 China had doubled its number of billionaires to 115,” he said.