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Exclusive - Chinese, Japanese suitors eye $4 billion sale of CIT plane leasing unit - sources

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05/30/2016 | 09:21am CEST
A teller at a branch of the Industrial and Commercial Bank of China (ICBC) works behind the counter in central Sydney, Australia

U.S. lender CIT Group Inc has kicked off the sale of its aircraft leasing assets by inviting more than a dozen entities to consider bidding, including China's HNA Group, Industrial and Commercial Bank of China's ICBC Leasing, and Japan's Orix Corp, sources familiar with the matter said.

The sale of CIT's Commercial Air unit could fetch between $3 billion (2 billion pounds) to $4 billion, with Century Tokyo Leasing, sovereign wealth fund China Investment Corp, CDB Leasing, plus some global pension funds and insurers, also invited to bid for the assets, the sources added.

The strong line-up of Chinese and Japanese suitors in the auction underscores the growing importance of cashed-up Asian lessors who are investing billions of dollars in a sector that offers stable, long-term and dollar-based revenue. It also signifies the shifting balance of the global aviation industry to Asia, which is seen as the engine of growth.

First-round bids for CIT's leasing arm, which owns, finances and manages a fleet of more than 350 planes, are due in June, said the sources, who declined to be named as the information has not been publicly disclosed. CIT Commercial Air has assets valued at around $11 billion and about 100 customers including Delta Air Lines and China Eastern Airlines.

Companies are showing a greater appetite for pouring money into aviation financing due to expectations of "mid to single digit" returns, and as other markets such as real estate and stocks remain challenging, analysts said.

"In the past, lot of airlines were opting for ownership of planes but now most airlines are open minded on the leasing options," said Johnny Lau, who ran aircraft leasing units at some Chinese banks before starting his own consultancy.

"There is a lot of capital you need to employ for owning aircraft but for leasing planes in the short-term, you don't need much money to get the same type of assets to use," he said.

EXPANDING AGGRESSIVELY

CIT, among the world's top 10 lessors, has said it is looking to sell or spin-off its Commercial Air unit by the end of the year as it focuses on domestic banking. "We do not comment on price or participants in the process," a CIT spokesman said when asked about the auction.

One of the sources said some of the prospective bidders will be given access to detailed financials of CIT's unit in a few weeks.

Chinese aviation and shipping conglomerate HNA, which bought Irish peer Avolon for about $2.5 billion last year, and is expanding aggressively, is a leading contender for CIT's aviation assets, the sources said.

A spokeswoman for HNA said the company was not aware of a possible bid.

The push by Chinese lessors comes as China has emerged as the fastest growing major air travel market, with overall annual passenger volume of 392 million in 2014, rising at more than 10 percent a year, according to official data. Airbus forecasts China will leapfrog the United States as the world's largest domestic air traffic market within 10 years.

Asian firms, led by Chinese lessors, have broken into the big league in the $228 billion global aircraft leasing industry in recent years as they take on Western firms such as AerCap Holdings and General Electric's GECAS which still dominate the sector.

Orix, Century Tokyo Leasing and ICBC Leasing declined to comment. CIC did not comment. CDB Leasing could not be reached for comment.

Armed with cheap funding and ambitious expansion plans, Chinese banks are seeking to become global champions in an industry that provides about 40 percent of the planes used by airlines around the world.

(Reporting by Anshuman Daga in SINGAPORE and Denny Thomas in HONG KONG; Additional reporting by Matthew Miller and Shu Zhang in BEIJING and Taiga Uranaka and Emi Emoto in TOKYO; Editing by Lisa Jucca and Martin Howell)

By Anshuman Daga and Denny Thomas

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