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Fitch sees risk from Chinese lessors driving up competition

Fitch Ratings expects the continued aggressive growth of Chinese lessors to pose a risk that other lessors must monitor in the year ahead.

In a video presentation on risks to watch out for in the aviation finance sector in 2018, Fitch’s senior director financial institutions Sean Pattap says that while overall aircraft leasing is expected to perform strongly, disruption to pricing by China’s lessors could put pressure on the ratings of established players.

“A key risk to look out for in 2018 is rising competition, particularly in China, which could place pressure on industry lease yields,” he says.

Citing FlightGlobal data, Pattap adds that around 42% of aircraft being delivered into the Chinese market are lessor-owned, up from 33% in 2012.

“Chinese backed lessors are also active in new delivery sale-and-leaseback transactions and in the leasing of older aircraft.”

His comments echo a November research note from the agency, which warned that the ratings of established lessors could come under pressure if the intensified pricing pressure on leases starts to flow through to profit margins.

Increasingly, those lessors are expanding internationally under Beijing’s ‘One Belt, One Road’ and ‘Go Global’ initiatives, backed by low-cost funding from their parent companies – usually state-linked banks.

In late October, Flight Ascend Consultancy predicted that Chinese capital would fund one-third of all aircraft deliveries in five years’ time, which would reshape the dynamics of the aircraft leasing and airline sectors.

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