China, India aircraft leasing boom

The adoption of the open sky policy by China and India, the two most populous countries in the world, has provided a massive boost to the commercial aviation sector in the Asia Pacific region. In taking advantage of encouraging regulations and the general upturn in the regional economy, several new airline operators have either obtained permits or started commercial operations within the past two years.

Asian Pacific companies leased more aircraft than their North American counterparts, and these developments promise great opportunities for the aircraft leasing industry.

New analysis from Frost & Sullivan reveals that the portfolio size of leased aircraft reached $115.42 billion in 2004, and is projected to reach $143.93 billion by 2008.

Until early 2003, India (with a population of over one billion people) had only two government-run and two private airlines, for a combined fleet of only 160 aircraft. Presently, 11 airlines have obtained commercial licenses and are expected to account for an estimated fleet of 350 aircraft in the next four to five years.

While market participants feel positive concerning the overall boom in the Asian airline industry, infrastructure concerns continue to pose challenges for the airline industry, and consequently, the aircraft leasing industry.

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“The Asia Pacific region continues to suffer from poor infrastructure. The limited number of airports in the region are unlikely to accommodate the increasing air traffic,” notes Frost & Sullivan Financial Analyst Kirti Timmanagoudar. “Further, the shortage of pilots, cabin crew, and other skilled personnel in maintenance services are proving to be hurdles in the rapid expansion of the airline industry in the region.”

Nevertheless, with the growing number of low cost carriers, the Asia Pacific region is set to emerge as the fastest growing segment of the aircraft leasing market.

Overall, commercial aircraft comprise 86.5 percent of the total aircraft-leasing portfolio; hence the aircraft leasing market is largely influenced by the performance of the highly cyclical and extremely competitive airline industry.

However, despite the post 9/11 decline in air travel and rising fuel costs, the fundamental evaluation measurements for airline industry and cargo traffic, such as available seat miles (ASMs) and revenue passenger miles (RPMs) have continued to improve since the second half of 2003.

Boeing Capital and BAE System’s leasing arms are the most notable original equipment manufacturers (OEMs) in the commercial aircraft leasing market; and, among the regional aircraft manufacturers, Cessna Finance Corporation (Textron Inc), Embraer Finance, and Bombardier Capital remain the prominent participants.

The crucial difference between OEM aircraft leasing companies and independent leasing companies is that most OEMs’ subsidiaries primarily provide financial assistance and help customers obtain lease agreements, but never really ‘lease’ an aircraft to a customer.

“The aircraft leasing industry in the North American region has matured, and the majority of the growth in the aircraft leasing industry is driven by the emergence of low-cost carriers in the Asia Pacific region, along with the recovery of the airline industry in Europe,” says Timmanagoudar. “India, China, and Russia are expected to play major roles in the growth of the aircraft leasing industry.”

World Aircraft Leasing Industry Analysis and Growth Opportunities, a part of the Financial Benchmarking & Analysis in the Aerospace Industry, provides an overview and outlook for the global aircraft leasing industry.

The study is segmented into commercial aircraft, regional jets, and business jets (by the type of aircraft), and North America, Europe, Asia Pacific, Africa and Middle East, and Latin American markets (by region).

This research includes detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants. Interviews are available to the press.
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