China Aircraft Leasing Group Holdings Ltd (HKG: 1848) has agreed to buy 50 Airbus SE A320neo aircraft for a hefty sum of $5.42 billion in an attempt to bolster its position in the aircraft sector as a major player.
China Aircraft Leasing owns and maintains 107 aircraft. The purchase price as per the deal would be lower that Airbus' original list price due to heavy price concessions.
The aircraft will be delivered in stages through 2023. The total order book would rise to 252 aircraft, constituting 202 from Airbus (EPA: AIR) and 50 from Boeing Co.
However, the deal hasn't emerged out of the blue. It represents just one aspect of an overarching trend that includes a boom in the travel market stemming from an increase in middle class disposable income, leading to an rise in spending on leisure travel.
Some have forecasted that China will need over 7,200 commercial aircraft over the next 20 years, while the International Air Transport Association estimates that the country will overtake the U.S. as the world's largest air-travel market by 2024.
China has the fastest annual passenger growth and is expected to be a market leader by 2036. The Airbus deal will kickstart a range of future transactions that will raise the sector's penetration rates, fueling this growth. As investors identify the positive role China Aircraft has played in this process, representing a flagship deal, its stocks have been up by around 2% since the announcement.
"This bulk purchase will significantly expand China Aircraft Leasing's fleet portfolio and further solidify our position as a full value-chain aircraft solutions provider," said Mike Poon, CEO of the lessor, which already owns 50 other airliners from Airbus rival Boeing Co.
Furthermore, China and the European Union agreed to recognize each other's aircraft product-safety standards just last month, a gesture that came one month after Beijing established a similar deal with the U.S.
In light of concerns that China may be facing an economic slowdown in 2018, this is welcome news, because it means not every sector of China's economy will be negatively affected by this predicted downturn.
However, there is a catch: as more people are spending money on traveling abroad, currency will flow out of the Chinese economy. This will further weaken the Chinese Yuan, which has already been predicted to decrease in value.
- http://www.businessinsider.com/r-china-aircraft-leasing-buys-50-airbus-a320neo-series-for-54-billion-2017-12
- https://economictimes.indiatimes.com/news/international/chinese-leasing-firm-orders-50-airbus-jets-in-5-42-billion-deal/articleshow/62292636.cms
- https://www.bloomberg.com/news/articles/2017-12-28/china-aircraft-to-buy-50-airbus-jets-valued-at-5-42-billion
- https://www.caixinglobal.com/2017-12-29/china-aircraft-leasing-group-buys-50-airbus-jets-101191403.html
