“China Inc” has agreed to buy 80% of mega-lessor and optioned another 10%, with major implications for aviation.

parent AIG, which is still largely owned by the US government after the 2008 bailout following the financial meltdown, retains the balance.

The US Government committee on foreign investment in the United States has to review all deals of a certain size with China.

The 80% sale has a price of $4.8bn, which is $2.5bn less than book value, implying a big write down will be forthcoming. This follows billions of dollars in previous write-downs and has ominous implications for other lessors who generally haven’t written down aircraft values. Any sales would almost certainly trigger write downs, turning balance sheets upside down for lessors.

While AIG (and the US government) get billions of dollars, the Chinese become an instant huge player on the stage. The Bank of previously purchased what is now BOC Aviation, based in Singapore, but dwarfs BOCA. If ICBC later comes into the ILFC deal, which it may, ICBC’s fledging leasing business stands to gain valuable expertise.

We’d also expect to eventually order the COMAC C919, and in greater quantities than competitor GECAS.

We expect business as usual for the near term. But this is yet another step in China’s path to a superpower in aerospace.

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