China`s private jet market faces another tough

China's private jet market faces another tough
year amid changes
Submitted by kerry.nelson on Apr 26th 2015, 9:56pm
Sijia Jiang [email protected]
After peaking in 2012, China's private jet market faces another tough year as the wider economic
slowdown is exacerbated by luxury crackdown
Business jet market grew 15.5 per cent last year.Photo: SCMP Pictures
A political clampdown on all things luxurious on the mainland that is in its third year has the Chinese
private jet market bracing for another tough 12 months.
Last year was already the slowest for growth in the market since it came into being in the late 2000s.
Now, the spending fears have been joined by a clearly slowing economy - a combination expected to
further weaken demand that leaves aircraft manufacturers, charter operators and leasing companies
in a scramble for customers.
"Companies that have dived in at a boom time between 2009 and 2012 are now having a harder
time selling or leasing these aircraft in a tighter business jet market," said David Yu, the managing
director of aviation investor Inception Aviation. "Financing is selective, potential buyers are cautious
and some owners want to get rid of their planes for a variety of reasons."
Jeffrey Lowe, the managing director of Hong Kongbased consultancy Asian Sky Group, which produces
the annual Asia-Pacific business jet fleet report, said
backlogs of new orders and new aircraft deliveries
were a thing of the past.
According to the report, the greater China region was
home to 439 of Asia's 744 business jets at the end of
last year, with 297 on the mainland and 114 in Hong
Kong. That represents a net addition of 59 jets in the
year, or growth of only 15.5 per cent, compared with
49.8 per cent in 2012 and 42.3 per cent in 2011.
At this month's Asian Business Aviation Convention and Exhibition (ABACE) in Shanghai, aircraft
vendors and Civil Aviation Administration of China officials were stressing the utility rather than the
luxury aspect of business aviation.
"Business jets are not fancy toys. They are just useful tools for efficient air transport," CAAC deputy
administrator Wang Zhiqing said.
While the buyers of business jets on the mainland have always been private companies rather than
state-owned enterprises, SOEs and the government had been key customers for private charter
services before President Xi Jinping's anti-corruption campaign erased that demand.
"The charter market is particularly bad," Lowe said. "The biggest charterer was the government. Now
that has disappeared."
The mainland business jet market had a preference for bigger, more expensive aircraft from day
one, resulting in large-cabin, long-range models dominating the greater China fleet. Gulfstream and
Bombardier are the manufacturers with by far the biggest market share.
Gulfstream's G550, which seats up to 18 and counts Alibaba Group Holding's Jack Ma Yun and
Dalian Wanda Group's Wang Jianlin as owners, is the most popular model in the region, followed by
the smaller G450 seating up to 16.
Deer Jet, founded by HNA Group in 1995 to provide the first charter service on the mainland, is the
oldest and largest business jet operator there with 83 jets - 63 are client-owned.
"Wealth-flaunting used to be a factor in Chinese customers' aircraft choices," Deer Jet chief
executive Zhang Peng said. "Now, they are learning to choose mission-appropriate aircraft."
Zhang said the company had no plans to buy more planes.
Asian Sky's data shows all manufacturers, with the exception of Boeing and Embraer which had
small market shares, delivered fewer aircraft into China last year than in 2013.
While Gulfstream and Bombardier still added the most aircraft last year, Lowe said they were also
the ones most exposed to competition from Chinese leasing firms, which are their customers but are
now also trying to sell to the same end users.
"You have all the Chinese leasing companies that had aircraft on their order books that they have to
find homes for," Lowe said.
Minsheng Financial Leasing, Asia's largest business aircraft lessor with a fleet of 180 jets, signed a
deal for 60 Gulfstream jets in April last year in what was the manufacturer's largest single order. The
planes will start delivery later this year.
"Back in 2014 the leasing companies all dived in and placed the orders directly with the
[manufacturers]," Lowe said. "Now those planes are being delivered [during] a down market. So to a
certain extent these guys are all left holding the bags now."
He estimates that 30 new aircraft from five Chinese leasing companies with no customers are
hanging over the market this year. "It is not a small number," he said. "Where those planes find
homes and how they are going to be managed by the leasing companies and how they are going to
be managed by the [manufacturers] as well is going to be very interesting, because there are only so
many buyers out there."
Minsheng announced at ABACE the establishment of an online trading platform for second-hand
business jets.
"The first generation of business jets that entered China around 2009, mostly brand new, are now
approaching the five-year age that is the typical time a jet spends with one owner," Minsheng vicepresident Wang Fuhou said. "In mature markets, 9 to 15 per cent of the fleet gets replaced every
year. We believe there will be a lot of pre-owned transactions to come as the Chinese market
matures."
Jolie Howard, a vice-president of sales at CIT Business Aircraft Finance, estimates transactions of
pre-owned aircraft have grown in the past three years to account for half of the Chinese market. But
exporting planes out of the mainland could be a headache.
Howard said the logistics hassles and legal complexities involved in deregistering a mainland plane
were new for most brokers, while Lowe said mainland-owned planes had unfairly been viewed as
less well-managed, which affected valuations.
The "new normal" for business aviation in China may not be as bad as the "flat is the new up" heard
in market banter, but the market is certainly headed for a period of slow growth - something
inevitable on the way to maturity. Asian Sky's fleet report forecasts the greater China fleet will grow
by just under 10 per cent this year.
"I don't think we will ever see the same kind of growth rate [in 2012] again," Lowe said.