China’s aircraft lessors: global aviation slump poses risks despite domestic recovery

Research Announcement:

Moody’s – China’s aircraft lessors: global

aviation slump poses risks despite domestic recovery

Hong Kong, February 01, 2021 —

» A domestic traffic recovery is bolstering Chinese airlines’ ability to service aircraft leases, while an

elusive rebound in global traffic poses high risks for aircraft lessors

» Airlines’ fleet expansion post the pandemic will boost China’s aircraft lessors, in particular bank-

affiliated specialized lessors, given the advantages of the leasing model

China’s rebounding domestic aviation since the second quarter of 2020 has partly restored Chinese

airlines’ revenue and cash flow, enabling them to service their aircraft leases. This is a credit positive

for Chinese aircraft lessors, according to Moody’s Investors Service in a report analyzing the

performance of the industry.
“We believe top Chinese airlines will lease more aircraft, from already over half of their fleet currently,

as they expand in the coming years,” says Jessie Tung, a Moody’s Vice President and Senior Credit

Officer.
The recovery in China’s domestic air traffic also puts its aviation industry back on an expansionary

investment cycle. This will benefit aircraft lessors given that the leasing model offers better cash

management, lower financing costs and higher operational flexibility. Leasing is the core financing

channel Chinese airlines use to fund their aircraft fleets.
Still, risks continue to be high because China’s aircraft lessors remain exposed to the global aviation

cycle, which remains grounded. This severe downturn in the global aviation market, if prolonged,

could add to the credit burden of Chinese aircraft lessors’ portfolios in multiple ways.
“The credit burden from funding China’s future aviation growth will further test the business model of

multiline general lessors and favor specialized lessors with scale and liquidity,” adds Sean Hung, a

Moody’s Vice President and Senior Analyst.
In particular, bank-affiliated Chinese aircraft lessors will get the additional credit supports and

funding access they need to expand their franchise either organically or via overseas expansion and

domestic consolidation.

Subscribers can access the report, “Aircraft lessors – China: Credit challenges remain

high in 2021 despite recovering domestic air traffic”, at:

http://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_1233846

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updated credit rating action information and rating history.
Sean Hung, CFA

VP-Senior Analyst

Financial Institutions Group

Moody’s Investors Service Hong Kong Ltd.

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Sophia Lee, CFA

Associate Managing Director

Financial Institutions Group

Moody’s Investors Service Hong Kong Ltd.

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Originally published February 1, 2021, 12:39 AM

Tags: Aircraft, Aviation, Chinas, domestic, Global, lessors, poses, Recovery, risks, slump