International Lease Finance (ILFC) has shrugged off threats from a growing number of domestic players in China, its biggest single market, saying it has the "first mover" advantage with over 200 planes on order.
China's insatiable appetite for air travel thanks to a growing wealthy population has created opportunities for leasing firms, which own about two aircraft in five of the global fleet.
ILFC, the aircraft leasing arm of American International Group, whose multi-billion dollar initial public offering is on hold, is the largest aircraft lessor in China with a 35 percent market share, or 180 planes deployed there, its chief executive Henri Courpron said.
China will need 5,260 new aircraft worth USD$670 billion by 2031, according to Boeing, of which about 40-50 percent would be owned by leasing firms, taking the market size to USD$268 billion in the next two decades.
The Chinese market is fragmented with at least 20 domestic players -- many of them small and new to the sector. But it is the foreign players, including ILFC and rival GECAS, that dominate the market, taking a combined 90 percent of the business.
ILFC has a portfolio of more than 1,000 owned or managed aircraft, and another 239 new fuel-efficient aircraft, including Boeing 787s and Airbus A320neos, on order. And it has the rights to purchase an additional 50 of such aircraft.
If the new lessors in China were to order those planes today, they could only get them in 2018 or 2019.
ILFC has been looking for areas of growth and beefed up its presence in the Asia Pacific region by opening offices in Singapore and Beijing this year.
"China is a big consumer of new aircraft. We are well positioned to take advantage of that," ILFC head of Asia Pacific David Nixon said.
"We have 240 aircraft coming in over the next five years and we expect a lot of those airplanes to wind up with Chinese airlines, Chinese carriers."
ROOM FOR EVERYONE
Aircraft leasing firms sprang up in China over the past few years with Industrial and Commercial Bank of China, and Bank of Communications setting up financial leasing arms in 2007. They were followed by China Construction Bank, China Minsheng Banking and China Development Bank.
"Airbus and Boeing deliver more and more planes every year and the share of financing organized by leasing companies is also increasing, so there is room for everybody," Courpron said.
He also said the lessor was ready for an IPO as its parent AIG had made clear that ILFC was a non-core unit and that it would like to sell all of its interest in it over time.
The company was still waiting for the right time, which could be 2013 or even 2014, he said.
"We are in a zone from a calendar stand point that is not favorable to an IPO because of the uncertainty in the US because of the election," Courpron said.
ILFC on Thursday reported operating income of USD$39 million in the third quarter, compared to an operating loss of USD$1.3 billion a year ago when it took USD$1.5 billion of impairment charges and fair value adjustments.