ILFC Says China To Succeed In Building Jets

January 26, 2012

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China's hopes of breaking the market stranglehold of Airbus and Boeing have received a boost from one of the world's largest owners of aircraft, which predicts Beijing will succeed in building its own passenger jets.

The head of US leasing giant International Lease Finance said it was talking to China's Comac to gain a better understanding of the model that Beijing aims to offer as a rival to the most popular Western jets later this decade.

"We are already talking to them. We are talking to all the aircraft manufacturers, and our customers are talking to them, and we have to have an opinion," chief executive Henri Courpron said.

"The Chinese have accomplished a lot over the last years. I would be amazed if they are not successful at manufacturing aircraft," he said in an interview, adding, "We are talking to them in the same way we are talking to everybody."

State-backed Comac, or Commercial Aircraft Corporation of China, unveiled plans for the 150-seat C919 model in 2009, saying it would make its maiden flight in 2014 and start being delivered to customers in 2016.

Europe's Ryanair, one of Boeing's biggest customers, has also singled out China as a threat to Airbus and Boeing.

In private, most Western aerospace executives agree China is a serious competitor but suggest the timetable will slip by years. The bar for successful competition was raised when Airbus and Boeing revamped their 150-seat models last year.

While it sets out to dethrone Airbus and Boeing, alongside other new entrants such as Canada and Russia, Courpron dismissed concerns about the strength of China's demand for imported aircraft as the nation's economic growth begins to taper off.

"It is slower than it used to be but you shouldn’t take anything for granted, and when you face exceptional circumstances you can't assume it is going to last forever," Courpron said.

"China is one of the very few countries in the world that is leading and everybody is foreseeing sustained demand for aircraft in China."

Boeing believes China will need 5,000 jets worth USD$600 billion over the next 20 years.


The French-born executive, who once sold planes for Airbus before rising up the plane maker's chain of command, was speaking after announcing the opening of offices in China and Singapore.

"We do about 30 percent of our business in the Asia-Pacific region, so a legitimate question would be what took you so long? We are the number one lessor in China with 180 aircraft," he said.

ILFC, a subsidiary of US insurer AIG, claims a special pedigree in that market having placed the first Airbus A320 in China in 1995 and first Boeing 737 regionally in 1998.

Now, ILFC and leading competitors Gecas and AerCap, face increasing competition on global markets from the leasing divisions of Chinese banks.

"It confirms that the operating lease model is one of the avenues of the future for aircraft financing... If you look at a 20-year span the share of aircraft financing that is in operating leases has more or less doubled," Courpron said.

Courpron was at a financing event overshadowed by reduced involvement from European banks amid the region's debt crisis and tougher capital adequacy rules. There are increasing offers of finance from Asia, which is already driving most jet demand.

Japan's Sumitomo Mitsui Financial Group and Sumitomo last week agreed to buy the aircraft leasing business of Royal Bank of Scotland in a USD$7.3 billion deal seen as propping up sector valuations.

Airbus and Boeing delivered a record total of more than 1,000 aircraft in 2011 and collectively plan to deliver up to 1,170 aircraft this year, leading some analysts to question how easily all the aircraft will be financed.

Courpron said the aircraft industry had regularly shown itself able to find financing and could do so again. Shortage of other funds could drive more airlines into the arms of lessors.

"Airbus and Boeing delivered a historical high in numbers of aircraft (in 2011) and last time we checked there no airplanes in Seattle or Toulouse for lack of financing," he said.

"We are talking about 2011 which was not exactly a walk in the park in terms of the world of finance. What may happen in 2012 -- I don’t know, but this industry has been very resilient and when there are issues there are solutions, and we are part of the solution providers."

ILFC, with a fleet of over 1,000 owned or managed aircraft, said this week it had concluded 296 lease transactions in 2011, up from 259 the year before.