Asia's biggest airplane lessor plans to raise S$1.5b in IPO
Monday 16th May 2016

Asia’s biggest aircraft lessor is seeking to raise HK.7 billion (S.5 billion) to fund an expansion as the region is poised to become the world’s top air travel market in about two decades.

BOC Aviation, the Singapore-based company that has more than 100 planes leased out to airlines around the world, will sell new and existing shares at HK apiece in a Hong Kong initial public offering (IPO). It will become the second Asian plane-leasing company to get listed on the stock market after China Aircraft Leasing Group Holdings went public in July 2014.

Spurred by strong economic growth in the past decade and rising incomes in the world’s two most populous countries, China and India, Asia is on course to beat the United States as the biggest market, according to plane makers Airbus Group and Boeing. That potential has lured billionaires such as Hong Kong’s Mr Li Ka-shing and Malaysia’s budget carrier pioneer Tony Fernandes to the plane-leasing market, where returns from multi-year contracts can exceed those of airlines.

“Asia is the fastest-growing aviation market with demand for pilots, aircraft and leased aircraft,” said Mr Mark Martin, founder of Dubai-based Martin Consulting. “Strategically, it’s a perfect time for BOC to capitalise on what they have already achieved.”

BOC Aviation was established in 1993 as Singapore Aircraft Leasing Enterprise, a business that was sold to Bank of China in 2006 and renamed BOC Aviation the following year. BOC Aviation and Bank of China plan to offer a combined 208.2 million shares, according to a statement to the Hong Kong exchange. Half the offering will consist of new shares, with the rest being sold by Bank of China.

Bank of China may sell an additional 31.2 million BOC Aviation shares if an over-allotment option is exercised, showed the statement.

The company plans to use the proceeds from the IPO to fund pre-delivery payments for new aircraft, as well as future plane purchases.

“Our core business model is focused on purchasing new, fuel-efficient, in-demand aircraft at competitive prices directly from aircraft manufacturers,” said BOC Aviation in the prospectus. The company also regularly replaces some of its planes to “maintain a young fleet”. At the end of last year, the average age of its fleet was 3.3 years, according to the prospectus.

The leasing company owned and managed 270 aircraft at the end of 2015, with narrow-body planes from the Airbus Group and Boeing making up 79 per cent of the total, according to its website. It had 241 airplanes on order at the end of last year.

BOC Aviation posted a record net income of US3 million (S0 million) in 2015, 11 per cent more than a year earlier, as revenue rose 10 per cent to US.09 billion. Cathay Pacific Airways, Qantas Airways and Lion Air Group are among BOC Aviation’s customers, according to the prospectus. Rental income from its clients in the Asia-Pacific region made up a third of the total at the end of last year, followed by Europe at 23.9 per cent. China, Hong Kong, Macau and Taiwan accounted for about 17 per cent.

Mr Li’s Cheung Kong Holdings, now part of CK Hutchison, agreed in 2014 to pay US.9 billion to buy 45 planes from companies including General Electric’s aviation services unit. Malaysian low-fare carrier AirAsia entered the leasing market the same year.

“What is different with BOC is that it is an established lessor. The initial placement of aircraft with airlines is comparatively easy. The challenge is re-marketing them,” said Mr Will Horton, a Hong Kong-based analyst at CAPA Centre for Aviation.



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