Insights Asian Aircraft Lessors On The Rise

Asian Insights SparX – Aviation
Aircraft Leasing Refer to important disclosures at the end of this report
DBS Group Research . Equity 10 February 2017
HSI : 23,575
Asian Lessors in the Ascendancy
Asian lessors have, notably via acquisitions, muscled Analyst
• in amongst the top players globally in recent years Paul YONG CFA +65 6682 3712
paulyong@dbs.com equityresearch@dbs.com
With 3 players now listed in HK and a myriad of
Singapore Research Team
Asian names linked with potential deals in this
• space, the sector should continue to garner interest
Backed by firm long-term secular growth in air
passenger travel globally, we are positive on the
prospects of aircraft leasing, which provides better
• returns and earnings visibility compared to airlines
Our top pick is BOC Aviation (BUY, TP HK$48.40) and
we initiate coverage on China Aircraft Leasing Stocks
• (CALC) with a BUY call and HK$11.60 TP Mkt 12-mth
Price Cap Target Performance (%)
Price 3 mth 12 mth
Stable cash flows and returns attract Asian investors. HK$ US$m HK$ Rating
Faced with lower growth and returns in other assets, and

BOC Aviation 41.30 3,632 48.40 (2.6) NA BUY
helped by cheaper cost of debt funding, we believe Asian CALCChina 9.23 733 11.60 (3.5) 61.9 BUY
investors of all types – banks, insurance companies and even CDB Financial Leas 1.94 3,129 2.01* 0.0 NA NR
family funds, are looking towards aircraft leasing assets to
Closing price as of 9 Feb 2017 * Potential Target
provide stable and predictable cash flows and returns. Source: DBS Bank
Long-term air travel growth underpins prospects for
aircraft leasing. Global air passenger traffic, driven by
growth of the middle class in emerging markets, is projected
to grow at a CAGR of 4.8% over the next two decades. This,
coupled with replacement demand, is why Boeing expects
the market to add nearly 40,000 new aircraft and require at
least US$3 trillion in funding needs, of which aircraft leasing
is projected to at least maintain its 42% market share. This
should provide plenty of opportunities for lessors to grow,
organically or inorganically.
Key risks. We believe that the risk of aircraft oversupply is

hugely mitigated by the Airbus-Boeing duopoly, which should
ensure rationality between the two major manufacturers and
keep the supply-demand dynamic balanced. Lessors will also
manage their interest rate risk by matching floating leases
with floating-rate debt, active hedging and trading of aircraft.
ASIAN INSIGHTS VICKERS SECURITIES

ed: JS / sa: YM
Industry Focus
Aircraft Leasing
The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting
the longer term investment thesis for a sector, country or the region. We view this as an
ongoing conversation rather than a one off treatise on the topic, and invite feedback
from our readers, and in particular welcome follow on questions worthy of closer
examination.
Table of Contents
Investment Summary 3
Global air traffic is on a long term secular growth path 5
Aircraft demand and fleet development 8
Aircraft financing 11
Aircraft leasing: A background 13
Strategies commonly employed by top lessors 15
The emergence and growth of aircraft lessors in Asia 18
Chinese lessors to the fore 19
Japanese lessors: Re-emerging once more 21
Other non-traditional lessors 22
Hong Kong’s tycoons join the party 23
Potential transactions in the aviation leasing space 23
The attractiveness of aircraft leasing 24
Valuations and Equity picks 25
Key Risk Factors 27
Appendix
Aircraft leasing 101 30
What’s driving the popularity of aircraft leasing? 32
Critical success factors for aircraft lessors 33
Drivers of aircraft value 37
Company Profiles
BOC Aviation 42
China Aircraft Leasing (Initiation) 49
CDB Financial Leasing (Equity Explorer) 69
.

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Industry Focus
Aircraft Leasing
Investment Summary
Global air passenger traffic on a firm long-term growth trend. being linked to all manner of activity in the sector, including
According to the International Air Transport Association 1) acquisition of aircraft portfolios such as AirAsia’s leasing
(IATA), global air passenger traffic rose 5.9% year-on-year in arm and top-10 lessor AWAS, and 2) potential initial public
2016 and is projected to grow 5.1% in 2017. Based on offerings of lessors such as Minsheng Financial Leasing or the
Boeing’s estimates, global RPKs (revenue passenger leasing arms of the Chinese banks, following the listing of
kilometres) will almost triple by 2035 to reach 17 trillion CDB Financial Leasing and BOC Aviation in Hong Kong.
passenger-kilometres (p-km), which represents a compound Meanwhile, even Hong Kong’s tycoons such as Cheong
annual growth rate (CAGR) of 4.8% for a 20-year growth Kong’s Li Kashing and Chow Tai Fook’s Dato Dr. Cheng Yu-
period from 2015 to 2035. tung have amassed aircraft-leasing assets in recent years, and
are still looking to grow their aircraft portfolios.
The growing middle class in emerging economies is a key
driver of demand for air travel. Looking ahead, the expanding Sector valuations and peer comparison. Listed aircraft lessors
middle class is expected to drive growth in global spending. in the US and HK are trading at an average of 9.7x current
The middle-class population is forecast to expand almost earnings, declining to 8.6x forward earnings. In Hong Kong,
73% from 2.8 billion in 2015 to 4.8 billion by 2035. BOC Aviation is the cheapest in terms of price-to-earnings at
Supported by firm global economic growth, a rising middle- 8.5x currently. Other than CALC, which is trading at 2.2x
class population, higher expected spending power, current price-to-book-value, against a projected current ROE
globalisation, and greater air connectivity, we expect trips of 22.6%, the rest of the aircraft lessors are generally trading
undertaken per-capita (and thus propensity to travel) to at around 1x to 1.1x current P/B. While on average the sector
remain on a steady uptrend over the long term, with strong only offers a dividend yield of 2.1%, CALC is offering a
growth in emerging markets such as China and India. decent prospective yield of 3.9%.
Robust demand for new aircraft and its financing in the next Our equity calls and picks in the aircraft-leasing sector. Our
two decades. Based on Boeing’s estimates, the global fleet top pick is BOC Aviation (BUY, TP HK$48) and we initiate
will more than double to 45,240 by 2035 to cater for coverage on China Aircraft Leasing (CALC) with a BUY call
increased air travel demand. Of the 22,510 in-service aircraft and HK$11.60 target price.
in 2015, 18,330 are slated to be retired from service while
another 1,440 are expected to be converted to freighters to Key Risks:
further extend their useful lives. Thus, Boeing expects that Aircraft oversupply - The most common concern for investors
about 39,620 new aircraft will be required and delivered seems to be that of aircraft oversupply. Our view is that given
between 2015 and 2035, and would require financing of at the duopoly in aircraft manufacturing, aircraft supply-demand
least US$3 trillion in 2015 dollar terms. should be balanced in the long term as it is in the ’s interest
of the original equipment manufacturers (OEMs) to promote
The growth and importance of the aircraft-leasing sector. a balanced situation. In the short term, we also see the
From less than 1% share in the 1970s, aircraft leasing has aircraft supply-demand environment as relatively benign as 1)
since grown its market share of the global fleet to over 40% global load factors are near historic highs, 2) OEM production
and has held steady at around 42% in the last decade. growth rate is matching expected demand growth 3) order
Aircraft lessors play an important role in financing the books are strong, and 4) aircraft storage/retirement are
substantial funding requirements for aircraft, and distributing already at low rates.
aircraft capacity more efficiently globally.
Interest rate risk - A key feature or driver of an aircraft lessor’s
Asian lessors have muscled in on the game in recent years. earnings is the net spread (the difference between average
Today, five of the twelve largest aircraft lessors hail from Asia, yield on aircraft portfolio and average cost of debt) that a
and a sixth is from Australia. Most of these have prominently lessor earns. In an environment of rising interest rates,
grown through the acquisition of another leasing company, investors may have reason to fret. Generally speaking, aircraft
and in the case of HNA Group’s, two – Avolon and CIT. lessors are well aware of this risk and manage it via 1) natural
Chinese lessors figure prominently among the top 12, hedging where fixed-rate leases are funded by fixed-rate
including the largest player Avolon/CIT while Japanese lessor debt, and floating-rate leases are matched with floating-rate
SMBC Aviation is also among the top 5 lessors globally. debt, 2) active interest-rate hedging using derivatives such as
caps and swaps, and 3) trading (sale) of aircraft in the
Transactions and M&A activity remain buoyant in the leasing portfolio.
sector, with Asian players firmly in the mix. Asian lessors are

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Industry Focus
Aircraft Leasing
Emergence and Growth of Aircraft Lessors in Asia

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Industry Focus
Aircraft Leasing
Global air traffic is on a long term secular growth path
Rosy outlook for global aviation traffic. According to the World average GDP to grow at 2.9% per annum over the long
International Air Transport Association (IATA), global air term. Anticipating a world GDP growth rate of 2.9% p.a. over
passenger traffic rose 5.9% year-on-year in 2016 and is the next two decades – which should help spur trade flows,
projected to grow 5.1% in 2017. Based on Boeing’s estimates, human capital movement, tourism, and ultimately, demand for
global revenue passenger kilometers (RPKs) will almost triple global air travel, Boeing predicts air passenger traffic will grow
by 2035; reaching 17,093 billion passenger-kilometres (p-km) at an average of 4.8% p.a. into 2035. This is supported by
which represents a compound annual growth rate (CAGR) of historical trends, where global air travel has consistently
4.8% over a 20-year growth period from 2015 to 2035. outpaced world GDP growth at 1.5x to 2x.
World traffic flow forecast (RPKs in billions) for the next 20 years Breakdown of global annual GDP forecasts by region (2015-2035)
20000
17,093
15000
RP Ks per billion
10000
6,664
5,585 5,898 6,246
5,262
4,939
5000
0
2010 2011 2012 2013 2014 2015 2020 2025 2030 2035
Source: Boeing, DBS Bank

Key drivers of air traffic demand:
Bulk of growth led by Asia-Pacific, Africa and the Middle East.
1. Prevailing economic conditions, which dictate travel Between 2016 and 2035, global growth is expected to be
demand needs. largely driven by the Asia-Pacific region, which is poised to log
an annual GDP growth rate of about 4.1%, far exceeding the
2. Improving inter- and intra-region route connectivity,
global average of 2.9%. Following closely behind are the
helped by liberalisation of airspace and low-cost carriers.
Middle East’s estimated 3.8% and Africa’s 3.7%.
3. Favourable demographic trends (i.e. population growth,
rising middle class population, and higher discretionary Growing air connectivity and the rise of mega aviation hubs.
spending). The gradual liberalisation of airspaces through open skies and
bilateral air transport agreements, coupled with the expansion
of low-cost carriers, have played a central role in driving inter-
Drivers for air traffic and aircraft fleet growth and intra-region air connectivity and the formation of new
mega aviation hubs.
Economy
To illustrate, Shanghai Pudong Airport is now ranked the
Increased eighth busiest airport (by passengers) in 2016 from the 34th
Demographics Air Traffic Growth demand for
aircraft position in 2009 after passenger traffic more than doubled
from nearly 32 million in 2009 to over 66 million in 2016. Over
this period, the market share of low-cost carriers in China also
Connectivity
strengthened significantly from around 8% in December 2009
to more than 20% in December 2016.
Source: Airbus, DBS Bank
Airbus estimates that by 2035, the number of aviation mega-
cities (which it defines as cities with more than 10,000 daily
long-haul passengers) will rise to 93, from 55 in 2015.

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Aircraft Leasing
Growth and dominance of the middle class by 2035. Looking Expect higher propensity to travel over the next 20 years
ahead, global spending power will largely be driven by the 8.00
growing middle class population, which is forecast to expand by
almost 73% from 2.8 billion in 2015 to 4.8 billion by 2035. Year: 2035
Based on estimates by Airbus and Oxford Economics, the 6.00
middle class population will likely account for over 55% of the Year: 2026
world’s total population by 2035 – the bulk of which should 4.00
stem from emerging economies. Year: 2016
T ri ps per capita
Burgeoning middle class population (in millions) between 2015 2.00
and 2035
Emerging Economies Developing countries Mature countries
GDP per capita
-
Forecast - 50,000 100,000 150,000 200,000 250,000
6000
4, 830
5000 -2.00
3,776
4000
2, 792
3000 3528 -4.00
2602 Source: Airbus, Boeing
2000 1738
1000 206 310 441 Propensity to travel to remain on a steady uptrend. Thanks to
848 864 861 firm global economic growth, rising middle class population,
0
2015 2025 2035
higher expected spending power, globalisation, and greater air
World pop.
7.2 8.1 8.8
connectivity, we expect trips undertaken per capita (and thus
(bn) propensity to travel) to remain on a steady uptrend over the
38% 46% 55%
% World pop. long term.
*Households with yearly income between $20,000 and $150,000 at
PPP in constant 2014 prices Demand for travel in emerging markets set to outpace that of
Source: Airbus, Oxford Economics, DBS Bank mature regions. In 2015, average trips undertaken annually per
capita in mature regions such as North America and Europe
Strong growth in discretionary spending. Based on estimates by stood at 1.8 and 1.2, respectively, far above that observed in
Airbus and Oxford Economics, discretionary spending globally emerging economies such as China’s 0.3 and less than 0.1 for
will rise from US$8 trillion to US$13.2 trillion by 2025, driven by India.
higher spending in emerging economies. The share of
discretionary spending by emerging economies is expected to
expand from 39% in 2015 to 46% by 2025. Airbus forecasts the travel demand gap between mature and
emerging markets will narrow by 2035 on the back of rapid
Discretionary spending in 2015 vs 2025 economic growth, with China set to see a multi-fold increase
2015 2025
in air travel to 1.3 trips per capita. In absolute terms, given its
Emerging Economy population of over 1.37 billion, China’s air travel market holds
Rest of the world vast potential. Similarly, India is also poised to deliver
significant trip per capita growth, albeit on a smaller scale.
Trips per capita for selected countries & regions (2015 vs 2035)
39% 46%
US$8.0tn 54% US$13.2tn
61% North 2 .4
1.8
America
Europe 1.2 2 .2
PRC 0.3 1 .3
*Spending on recreational goods and services (2010 $US, PPP) 0.08

2015 Trips per capita
India 0 .3 2035 Trips per capita
Source: Airbus, Oxford Economics, DBS Bank
0 1 2 3

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Industry Focus
Aircraft Leasing
Asia-Pacific, the single most populous region, to continue Emerging and developing economies are the ones to watch.
leading global air traffic. Home to approximately 4.4 billion Representing nearly 86% of global population, or 6.2 billion
people in 2015, Asia-Pacific accounts for almost 60% of the people, air traffic growth in emerging and developing
world’s population but only represents around 30% of global economies are expected to surpass that of advanced
RPK. economies as (1) the former’s living standards improve, (2)
more air travel infrastructure are put in place, and (3) as new
Continued growth in China’s domestic aviation sector could routes (especially between secondary cities) are formed.
see the mainland overtake the United States as the single
largest aviation market by 2030. Emerging/developing economies offer higher RPK growth
prospects
Mostly driven by strong demand in China and traction in other
fast-growing Asian economies (such as India), Airbus believes Population RPK
Economies Countries & Region CAGR
that air traffic in Asia-Pacific will grow at 5.5% CAGR, to (2015)
represent 36% of global RPK by 2035.  Asia
 China
 India
Global air traffic to grow at 4.5% CAGR into 2035 Emerging/  Middle East
6.2bn c.5.6%
Developing  Africa
Regions % of 2015 % of 2035 20-year  CIS
 Latin America
World’s RPK World’s RPK CAGR  Eastern Europe
Asia-Pacific 30% 36% 5.7%  Western Europe
Europe 25% 22% 3.5% Advanced  North America 1.0 bn c.3.7%
North 24% 19% 2.9%  Japan
America Source: Airbus, DBS Bank
Middle East 9% 11% 5.7%
Latin America 5% 5% 4.8%
CIS 4% 4% 4.1%
Africa 3% 3% 4.5%
Global Average 4.5%
Ranked the second and third largest aviation markets by RPK in

2015, the European and North American regions represented
25% and 24% of global RPK, respectively. With 20-year growth
expected to steady at 3.4% CAGR for both Europe and North
America (below the global average of 4.5%), Airbus estimates
that their global shares will taper slightly to 22% and 19%
respectively, in 2035.
Middle East to lead long-term traffic growth. Leveraging its

geographical advantage and gulf carriers’ rapid expansion,
Airbus expects the Middle East to deliver industry-leading 20-
year traffic growth at 6.2% CAGR, to grow its share of global
RPK from 9% in 2015 to 11% by 2035.

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Industry Focus
Aircraft Leasing
Aircraft demand and fleet development
North America had largest global fleet share in 2015… Boeing For 2017F, IATA estimates that global fleet growth will taper
estimates there were approximately 22,510 passenger aircraft in slightly to 3.6%.
service globally in 2015. Of which, North America had the
largest fleet share of about 31% or 6,910 aircraft. The second- Global fleet growth over the past few years
largest fleet was found in Asia-Pacific with 6,350 aircraft, which
represented about 28% of the global fleet. Europe, with about
4,610 aircraft and a 20% share, ranked third.
Breakdown of 2015 global fleet by region

8,000
6,910
7,000 6,350
6,000
5,000 4,610
4,000
3,000
2,000 1,370 1,550 Source: CAPA, IATA, DBS Bank

1,030
1,000 690
0
Similarly, Boeing expects global passenger fleet to grow at
Asia North Europe Middle Latin C.I.S. Africa 3.6% CAGR between 2015 and 2035. Boeing forecasts traffic
America East America
(RPK) growth of 4.8% CAGR between 2015 and 2035, and
Source: Boeing, DBS Bank believes that global passenger fleet should grow at 3.6% CAGR
to satisfy this growing demand for air travel.
...with a largely ageing fleet that needs to be replaced.
According to the fleet database from the Centre for Aviation Asia-Pacific’s fleet to grow at 5% CAGR, followed by the
(CAPA), the North America region is currently home to some Middle East’s 4.8% and Africa’s 4.4%. Given the region’s
of the world’s oldest passenger fleet, with an average fleet age strengthening economy, improving air transport connectivity,
of about 18 years. Meanwhile, the youngest stems from Latin and with over 100 million new passengers set to enter the air
America, with average fleet age of about 9.1 years. travel market each year, the Asia-Pacific region is poised to see
the largest fleet growth (at 5% CAGR) among peers.
While fleet age is viewed as a lagging indicator, it can still
provide insight into varying demand trends across regions and
Meanwhile, the Middle East is expected to expand its fleet by
direction with regard to fleet renewal.
4.8% per year, in line with expected RPK growth of 5.9%
Average passenger fleet age by region as at 8 August 2016 CAGR. As such, fleet growth in advanced markets such as
20 Europe and North America will likely be outpaced by that of
18
17.7 emerging and developing markets.
15.7
16 14.8
14 13.1 Fleet growth rate by region between 2016 and 2035
12 10.9
10 9.1 World Average 3.60%
8 Africa 3.80%
6
CIS 3.10%
4
2 Latin America 4.40%
0
Asia Pacific Middle East Africa Europe North America Latin America Middle East 4.80%
Source: CAPA, DBS Bank Europe 2.70%
North America 1.80%

Passenger fleet grew 4% p.a. on average over last decade.
Based on data from CAPA, we estimate the global in-service Asia 5.00%
passenger fleet grew by 3.5% in 2015 and 4% in 2016, 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
registering a long-term average growth of 3.9% p.a. over the
last decade.

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Industry Focus
Aircraft Leasing
According to Boeing, global fleet could more than double by Aircraft types. Broadly speaking, there are three distinct aircraft
2035. Based on Boeing’s estimates, global fleet will more than types:
double to 45,240 to match increased aviation demand. Of the 1. Wide-body: Typically larger commercial aircraft with twin
22,510 in-service aircraft in 2015, 18,330 are slated to be aisles typically with medium to long range and can have
retired from service while another 1,440 are expected to be passenger capacity from 160 to upwards of 480. Such
converted to freighters to extend their useful lives and are aircrafts can have 2 to 4 engines and be rated transatlantic
likely to be narrow-body aircraft. Boeing also expects about or transcontinental. At list prices, a wide-body such as a
39,620 new aircraft deliveries to be made between 2015 and B787-8 cost about US$224.6m.
2035.
2. Narrow-body: They are smaller aircrafts with a single aisle
Global fleet could double by 2035 configuration with a passenger capacity of up to 200 and
mainly ply short to medium haul routes. At list prices, a
50000
Growth Replacement Retained 45,240 narrow-body B737-700 cost about US$80.6m.
40000
3. Regional jets: Regional jets can be defined as a set of
narrow bodies typically with passenger capacity up to 100
30000 and are mostly used for connecting regional hubs and with
39,620
22510
a shorter range. These can include turboprops aircraft.
20000
Aircraft orders by type: The popularity of narrow-body
10000 Of the new aircrafts to be delivered by 2035, approximately
71% (or 28,140 hulls) will be narrow-bodies, while 23% (9,100
5620
0 aircraft) will be wide-bodies. The remaining 2,380 are regional
2015 2035F jets. The popularity of narrow-bodies among carriers is largely
Source: Boeing, DBS Bank attributable to:
Deliveries by region – Asia to account for 38%. Of the 39,620 1. Cost efficiency: Narrow-bodies tends to come with shorter,
new aircraft deliveries expected into 2035, Asia will account lighter engines which are typically more fuel efficient.
for c.38% or 15,130 aircraft. This is followed by the North
American (21%) and European (19%) regions which account 2. Route flexibility: Narrow bodies provide carriers – especially
for 8,330 and 7,570 aircraft, respectively. We see this as those who are also looking to operate new complementary
largely in line with their respective future air traffic demand short-haul routes, with wider redeployment opportunities.
needs, and as they seek to replace ageing fleet with newer Additionally, as these routes typically involve smaller hubs
technologies which are often more fuel-efficient to optimise with lower passenger traffic, carriers run a lower risk of
operating costs. unfilled seats.
Breakdown of global deliveries by aircraft type

Global new deliveries by region
Share of fleet Delivery units 2015-2035
C.I.S. 3% Africa 3% Regional
100% Jet, 2380
Latin America 12% 6%
90% Wide-
8%
80% body,
9100
Middle East 70%
8% 60% 71%
66%
50% 39,620
Asia 38%
40%
Ne w deliveries 30%
39,620 Narrow-
20% body,
Europe 19% 22% 23%
10% 28140
0%
2015 2035
North America Regional jet Narrow-body Wide-body

21%

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Industry Focus
Aircraft Leasing
Replacement needs and tighter regulation also drive aircraft Firm order backlog represents >50% of current fleet, with
demand. Travel demand aside, replacement needs and emerging markets contributing the lion’s share. We estimate
emergence of new regulations may also drive demand for that the order backlog of passenger aircraft from Airbus and
newer aircraft. As compared to older models, newer aircraft Boeing totaled 9,676 as at 6 Feb 2017.At present production /
offer the advantages of: (i) Lower operating costs, especially delivery rates, this is equivalent to approximately ten years’
improved fuel burn (the best way to hedge fuel cost exposure) worth of deliveries and represents c.54% of the current
and lower maintenance costs; (ii) Improved payload and range installed fleet.
capability (important for opening new markets) and despatch
reliability; (iii) Advanced cockpits and cabins (weight savings With the exception of Africa, emerging and developing markets
either reduce costs or offer greater revenue potential from such as Asia Pacific and the Middle East, generally have higher
increased seat density. Often, older aircraft are uneconomic to backlog-to-current fleet ratios relative to their mature
refurbish); and (iv) Availability (the option to upgrade an older counterparts (Europe and North America). While order backlogs
aircraft is driven by available supply of new aircraft). in North America and Europe only represent 36% and 42% of
their respective fleet, the respectively, they absolute aircraft or
The airline industry is also subject to regulations, particularly order remains substantial at 1,501 and 1,978 aircraft
on the safety and operational axes. The latter may impact respectively.
fleet strategy and aircraft values. Another form of regulation
which can potentially impact aircraft liquidity is aircraft With majority of the order backlog already firmly committed
importation age restrictions, which are used in certain towards airline’s fleet growth plans and replacement needs,
countries to prevent the import of aircraft older than a certain both Airbus and Boeing have announced plans to lift production
age (typically 10, 15 or 20 years). According to aviation rates for the Airbus A320 and Boeing 727 families of aircraft to
consultant Ascend, such regulations can be found in capitalise on the strong demand for passenger jets. Separately,
approximately 44 countries today, but only half of these are based on CAPA’s fleet data, we also estimate that c.27.5% or
currently in effect. 2,660 of the current order backlog actually accrue to lessors.
Expected to be delivered through 2025, we believe the firm

backlog of nearly 10,000 aircraft from Airbus and Boeing alone,
demonstrates the robust long-term demand for new
commercial jet airliners.
Order backlog (as disclosed by customers) as at 6 Feb 2017*
Regio n Africa Asia -Pacific E uro pe Lat in Ame rica Middle Ea st No rt h Ame rica
Order Backlog 190 4,006 1,978 719 1,282 1,501
% Share 2% 41% 20% 7% 13% 16%
Current Fleet 587 6,240 4,708 1,130 1,127 4,114
Backlog as % of Current Fleet 32% 64% 42% 64% 114% 36%
*for Airbus and Boeing passenger aircraft only
Source: CAPA, DBS Bank

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Aircraft Leasing
Aircraft financing
Actual value of new deliveries total c.US$3 tn. Based on the Growing need for aircraft financing. To support the strong
39,620 new fleet deliveries number between 2016 and 2035 demand for newer technologies and fuel-efficient aircraft going
forward, we anticipate that the aviation industry would require
as estimated by Boeing, the total value of aircraft based on list
even larger amounts of funding – above and beyond that in
prices would be worth at least c.US$5.96 trillion in 2015 dollar 2015, which Boeing estimates to be in excess of US$100 billion
terms, but closer to US$3 trillion in reality. p.a. According to their projections, annual aircraft financing
required for new deliveries alone will likely reach US$172 billion
% of aircraft type by delivery value (2015 vs 2035) by 2020, which represents a CAGR of 5.9% between 2015 and
2020.
Narrow- Narrow-
body body Aircraft financing needs to grow at 5.9% CAGR into 2020
50% 70%
Regional 200
Regional Jet 172
Jet 180
2015 2035 6% 161
2% Ma rket 160
Ma rket 142
140 127 130
Wide- 122
body 120
Wide- 24%
100
body
48% 80
60
Source: Boeing, DBS Bank 40
20
Asia to account for the bulk of aircraft fleet delivery costs. In 0
the next two decades (2016-2035), in line with the expected 2015 2016F 2017F 2018F 2019F 2020F
fleet expansion and deliveries - Asia will bear the bulk Source: Boeing, DBS Bank
(approximately 40%) of actual fleet delivery costs, which is
typically at a discount to list price and estimated overall costs is Primary sources of aircraft financing. Of the US$127 billion in
around US$1.195 trillion. Europe is expected to have a 19% new aircraft financing estimated for 2016, a majority (87%) will
share or about US$570 billion of actual fleet value, while the be attributable to capital markets, bank debt, and cash. Capital
North American market will contribute a further 17%, which markets will likely serve as the single largest source of financing,
represents an actual fleet value of approximately US$524 satisfying about 36% of new aircraft financing needs. Bank
billion. debt and cash will likely represent 27% and 24%, respectively.
While costs acrruing to Latin America, Africa and C.I.S are Meanwhile, export credit provided by export-import banks and
expected to remain small. According to Boeing, Latin America, tax equity should account for the remaining 13% for new aircraft
Africa and C.I.S will likely account for c.US$178bn (6%), financing. Given ample liquidity in commercial markets, the
c.US$86bn (3%) and c.US$72bn (2%) of actual fleet delivery popularity of export credit as a source of financing has
costs, respectively. We believe that this is mainly a result of diminished over time, but remains a key source of financing in
reflection of their preference/demand for secondary puchases of emerging markets.
older aircraft (usually from developed markets), as opposed to
outright purchases of newer models. Sources of aircraft financing sources in 2016F
Aircraft delivery value by region from 2016-2035 (List prices) 2%
C.I.S. Africa
2% 3%
Tax Equity
Middle East 11%
13% 24%
Asia Export Credit
Latin America 40%
6%
2016F Bank Debt
North America 27%
17%
Capital
Europe
Markets
19%
36% Cash
Va lue (2015, US$): 5,960 bn Source: Boeing, DBS Bank


Page 11
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Industry Focus
Aircraft Leasing
Capital markets. Capital markets play a huge role in aircraft Aircraft lessors play a big role in supporting new deliveries
financing. The largest users have been aircraft lessors, who have Airlines are growing to meet the continued aviation transport
the financial sophistication and experience. In 2015, aircraft demand globally, particularly new players such as the low cost
leasing companies tapped the capital markets frequently and carriers (LCCs) and start-up airlines in Asia. However, new
accounted for a 45% share of capital market financing. The aircraft are expensive and ties up large part of a carrier’s
second-largest user of the capital markets for aircraft financing balance sheet as its fleet expands. Hence, aircraft leasing
has been the US airlines as it is a cheaper source of financing companies will continue to support and play a big part in
than traditional commercial loans. Non-US airlines form the financing new commercial aircraft deliveries through direct
other bulk of the main user of capital markets. purchases and purchase-and-leaseback agreements as they
assist airlines in growing their fleet.
Users of capital market for aircraft financing
Sources of funds by aircraft leasing companies. Aircraft leasing
companies use a wide range of financing tools such as asset-
Non-US backed securities, debt capital markets, unsecured borrowings,
airlines etc. From the time series, it is evident that lessors are tapping
25%
more and more of the capital market – from 36% of all lessor
Lessors
45%
deliveries in 2012 to 53% in 2015.
Share of funding for aircraft lessor deliveries

US airlines
30% 100%
18% 19% 22% 21%
2015
US 40+bn 36% 37%
49% 53%
Source: Boeing, DBS Bank 50%
Commercial bank debt. The largest players that provide 30%

35%
commercial lending are led by China and Japan, who have been 21% 20%
extremely active and aggressive in the space. China accounts for 16%
9% 8% 6%
almost 29% of commercial lending for aircraft financing. Japan 0%
2012 2013 2014 2015F
is the second-largest lender at 15% globally. Cash Capital Markets Bank Debt Export Credit
Commercial bank debt by country for 2016F Source: Boeing, Company filings, DBS Bank
USA Others
5% China
16%
29%
Middle East
6%
Australia
7%
Japan
France
15%
9% Germany
13%

Page 12
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Industry Focus
Aircraft Leasing
Aircraft leasing: A background
A brief history of aircraft leasing. Aircraft leasing started almost Top aircraft leasing companies. While there are over 160
five decades ago in the 1960s, just as commercial aviation was operating lessors globally, the sector is dominated by players
taking off. In 1968, airframe maker McDonnell Douglas was the with 50 or more aircraft in their portfolios. Among these,
first to introduce a vendor aircraft finance business solution to AerCap and GECAS dwarf their peers with over a thousand
support its aircraft sales in an attempt to compete with its rivals. aircraft each, while the next closest player would be the
This eventually led to the founding of modern day aircraft Avolon/CIT Group (acquisition in-progress) with around 600
lessors Guinness Peat Aviation (GPA) in 1975 in Ireland and aircraft. Of the top 12 lessors currently, four are from China,
International Lease Finance Corporation (ILFC) in 1973.GPA and whereas there were none just ten years ago.
ILFC were eventually respectively taken over by General Electric
Capital Aviation Services (GECAS) and AerCap, who are Top global aircraft lessors (>100 seats)
currently the world’s top two lessors. Lessor In-service On order Total
Aircraft leasing today. From less than a 1% share in the 1970s, AerCap 1,127 408 1,535
aircraft leasing has since grown its market share of the global GECAS 1,203 256 1,459
fleet to over 40% and has held steady at around 42% in the HNA/Avolon/CIT 593 262 855
last decade while the global fleet continued to grow. (For more Air Lease Corp 276 373 649
on the basics of aircraft leasing, please refer to the appendix.) SMBC Aviation Capital 389 201 590
BOC Aviation 272 216 488
ICBC Leasing 279 133 412
BBAM LLC 389 0 389
Aviation Capital Group 248 101 349
AWAS 233 15 248
Macquarie AirFinance 198 40 238
CDB Leasing 158 54 212
Source: Bloomberg Intelligence, DBS Bank
Operating leases as a % of global aircraft fleet
Source: Ascend

Page 13
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Industry Focus
Aircraft Leasing
Asia Pacific and Europe are core markets for aircraft leasing. Breakdown of global fleet as at 7 Feb 2017
Currently, there are nearly 800 airlines in about 160 countries
operating almost 20,000 passenger jets of 100+ seats and their
freighter equivalents. According to data from CAPA, the global
airline fleet is currently dominated by the Asia-Pacific region
with a 34% market share as at 7 Feb 2017. Europe follows
with 26% and North America with 23%. A breakdown of the
global leased fleet shows similar trends, with Europe and Asia-
Pacific holding higher shares of around 30% each, and a lower
share in North America of less than 20% - which indicates that
the core aircraft operating lease markets are in Asia-Pacific and
Europe, while the tax regime in North America encourages
profitable airlines to own aircraft on their balance sheets.
Source: Ascend, DBS Bank
Largest carriers lessees are from Asia-Pacific and Europe. Based

on Air Finance data, the largest lessee by number of aircraft Top Asia-Pacific airline lessees. From Asia-Pacific, the Chinese
comes from Europe and Asia-Pacific respectively. The single airlines dominate the lessee space. China Southern leads with
largest carrier lease is American Airline that accounts for almost 195 aircraft on lease, followed by Air China with 168 aircraft,
430 aircrafts. Coming up in second is Air-France KLM as well as Garuda Indonesia with 158 aircraft, China Eastern with 157
IAG (“International Airline Group”) which includes British aircraft, and lastly, Jet Airways from India.
Airways, Aer Lingus, Iberia, Vueling airline brands under its
umbrella.
Top lessee by carriers/airlines (Jan 2016)
American Airlines 430

Air France-KLM 282
IAG 271
China Southern 195
Air China 168
Aeroflot 159
Garuda Indonesia 158
China Eastern 157
United Airlines 131
Emirates 122
TUI AG 108 North America
Alitalia 105 Europe
Air Canada 104 Asia-Pacific
Air Berlin 102 Middle-East
LATAM 97 Latin America
Transaero 96
C.I.S
GOL 92
Azul Linhas Aereas 92
Jet Airways 91
Delta 88
0 50 100 150 200 250 300 350 400 450 500
Source: Air Finance, DBS Bank

Page 14
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Industry Focus
Aircraft Leasing
Strategies commonly employed by top lessors
Narrow-bodies generally preferred. Based on CAPA’s fleet body space is mostly dominated by long-standing industry
database, we infer that nearly 60% of the global in-service leaders, GECAS and AerCap.
passenger fleet owned by lessors as at February 7, 2017 are
narrow-bodies. With a fleet of 905 and 730 narrow-body aircraft in their
respective portfolios, GECAS and AerCap’s current scale in the
Offering better cost-efficiency and route-flexibility relative to narrow-body leasing market significantly eclipses that of their
wide-body aircraft, narrow-bodies are highly sought-after by next closest rivals.
airlines, particularly in Asia where LCCs have been rapidly
gaining market share as they continue to drive regional Top 10 lessors for narrow bodies by fleet size (as at 7 February
2017)*
connectivity through fleet expansion and the launch of new
short–to-mid-haul routes.
Given the above, it is unsurprising that narrow-bodies are able

to tap a bigger market– and are thus generally more liquid,
which helps support secondary market values – and are often
easier placed out than wide-body types.
But evolution of wide-body jets could help lift proportion of

wide-bodies from 13% currently. Helped by technological
shifts, new-generation wide-body aircraft, such as Boeing’s 787
Dreamliner as well as Airbus’ A350 and A330 neo, offer
improved cost economics, performance, and operational
flexibility than previous generations’ (such as the Boeing 747
and Airbus A340) – and at a fraction of the cost.
Source: CAPA, DBS Bank; *excludes Avolon/CIT merger data
With the ability to conform to a wide range of carriers’ business

… and wide-body leasing space. Similar to trends in the global
models, these new-generation wide-body types could play a
narrow-body leasing market, both AerCap and GECAS also
bigger role in lessors’ portfolios going forward.
appear to dominate the wide-body leasing market, with
estimated market share of 14.9% and 5.9%, respectively.
% of global in-service leased passenger fleet are narrow
bodies*
Meanwhile the top 10 players jointly hold about 40% of the
global leased wide-body fleet, with Aercap having a larger
proportion of wide body aircraft in their portfolio relative to
other top tier lessors.
Top 10 lessors for wide bodies by fleet size (as at 7 February

2017)*
* as at 7 Feb 2017
Source: CAPA, DBS Bank
GECAS and AerCap dominate both the narrow-body… We

estimate that the top 10 players hold well over 40% of the
global leased narrow-body fleet. Among the top 10, data from
CAPA as at February 7, 2017 also suggests that the narrow- Source: CAPA, DBS Bank; *excludes Avolon/CIT merger data

Page 15
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Industry Focus
Aircraft Leasing
Lessors acquire their fleet either from the manufacturers directly Managing fleet age against risks. Lessors with older planes tend
or from the secondary market. Aircraft lessors generally acquire to enjoy higher yields, and vice versa. In the event of
aircraft through a) ordering and purchasing new aircraft directly overcrowding in the secondary market, however, lessors with
from manufacturers, b) purchase and lease-back transactions an ageing fleet could be faced with higher residual-value risks,
with its airline customers, or c) acquiring aircraft from other which may put pressure on their credit rating and financing
lessors or even the entire portfolio/platform. costs.
Top 10 lessors have an average fleet age of 7.4 years. Based on As such, a strong risk-management framework is necessary to
data from CAPA, we estimate that the average fleet age of the help balance the benefits of an older fleet against possible
top 10 aircraft lessors’ (by in-service narrow- and wide-body longer-term risks.
fleet size as at February 7 2017) is approximately 7.4 years.
No two leasing businesses the same. While the actual operating
Average fleet age of top 10 aircraft lessors (as at 7 Feb 2017) * model pursued tends to differ among the tier-1 lessors, their
underlying business strategy may be broadly classified under
either of the following categories: -
(1) Young fleet: Under this strategy, lessors typically manage

newer aircraft that are still in the first aircraft life-cycle and are
thus less subject to residual value risk and substantial
maintenance capex needs.
Lessors employing this strategy include ICBC Leasing, Avolon,

BOC Aviation, and Air Lease, which have average fleet ages
between 3.8 and 5.1 years.
(2) Yield-focused: Lessors such as Aircastle and AWAS operate

in a niche space which is more agnostic (on a relative basis) to
fleet age and instead, is focused on extracting yield and further
value from their fleet.
(3) All-rounders: Armed with specialty knowledge and extensive

* includes in-service narrow body and wide body fleet only technical expertise, lessors such as GECAS and AerCap are well
able to manage aircraft across ages and life-cycles. Their higher
Source: CAPA, DBS Bank fleet ages of 11.3 years and 11.6 years, respectively, are
reflective of this strategy.

Page 16
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Industry Focus
Aircraft Leasing
Key metric comparison between selected aircraft leasing companies
BOCA
As at end 2015 (US$m) AerCap Air Lease Air Castle FLY Leasing CALC
Total assets 43,914 12,355 6,570 3,417 3,090 12,474

Aircraft net book value 32,219 10,813 5,867 2,663 311 9,476
ROE (%) 13.8% 11.0% 6.9% 13.0% 19.5% 15.1%
Owned fleet 1109 240 162 80 63 227

Aircraft on order 447 389 35 n.a 129 241
Weighted average age (years) 7.7 3.6 7.5 6.6 3.5 3.3
7.4
Average lease remaining
(years) 5.9 7.2 5.9 6.5 10
Cost of debt funding (%) 3.70% 3.70% 5.20% 5.40% 4.10% 2.00%
Debt to equity (x) 3.5 2.6 2.3 3.7 9.5 3.7
Number of Aircraft Lessees 218 89 61 65 11 62

Number of Countries 90 50 37 36 3 30
Manufacturer Bias Airbus (53%) Airbus (40%) Boeing (56%) Boeing (57%) Airbus (92%) Airbus (51%)
(existing fleet)
Europe Asia (47%), Asia (42%), Europe (41%), Asia (100%) Asia (54%),
Geographic concentration (by (35%),AP (32%) Europe (34%) Europe(28%) Asia (31%) Europe (23%)
NBV)
American Diversified S. African Diversified China Eastern Cathay Pacific

Airlines (11%), client base Airways (~7%) client base (17%) (~7%)
Largest 3 customers
Aeroflot Russian Thai Airways Chengdu Iberia (~6%)

Airlines (~7%) (~7%) Airlines (15%)
Virgin Atlantic Martinair China Qantas(~6%)

Airways (~6%) (~6%) Southern
(14%)
Source: Company filings

Page 17
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Industry Focus
Aircraft Leasing
The emergence and growth of aircraft lessors in Asia
Inorganic growth a key driver. While aircraft leasing has years. And this does not take into account the purchase and
traditionally been dominated by American or European firms, leasebacks of aircraft they will enter into. All this implies that
Asian lessors have been catching up in a big way – beginning the largest Asian lessors will continue to grow at a pace that is
with the founding of Changjiang Leasing and ORIX Aviation in above industry average.
2000. Today, five of the twelve largest aircraft lessors hail from
Asia, and a sixth is from Australia. Most of these have Top global aircraft lessors (>100 seats) – November 2016
prominently grown through the acquisition of another leasing Lessor In-service On order Total
company, sometimes two.
AerCap 1,127 408 1,535
Less than a year after HNA Group completed the acquisition of GECAS 1,203 256 1,459
Avolon and merged it with its own aircraft-leasing arm Hong HNA/Avolon/CIT 593 262 855
Kong Aviation Capital, it sealed a deal in October 2016 to Air Lease Corp 276 373 649
acquire CIT’s aircraft-leasing arm – forming the world’s third- SMBC Aviation Capital 389 201 590
largest lessor. In 2012, SMBC Aviation was acquired from BOC Aviation 272 216 488
Royal Bank of Scotland, and BOC Aviation was acquired from ICBC Leasing 279 133 412
Singapore Airlines (and other investors) in 2006. CDB Leasing* 184 214 398
BBAM LLC 389 0 389
Organic growth has also helped. Meanwhile, Asian lessors Aviation Capital Group 248 101 349
have also grown organically from deliveries from OEM AWAS 233 15 248
manufacturers, primarily Airbus and Boeing. As it stands, Macquarie AirFinance 198 40 238
Avolon/CIT, SMBC, CDB Leasing, BOC Aviation, and ICBC
Leasing all have order books of over 100 aircraft, which should Source: Bloomberg Intelligence, DBS Bank; *As at June 2016
help drive double-digit growth in their portfolios in the coming
Timeline: The emergence of the Asian players
HKAC founded in JV between MCAP

BOCA acquired 2010 via the and Li-Ka Shing’s
Mitsubishi officially
Singapore Aircraft Founded in 2007 acquisition of Allco Cheung Kong
takes over Jackson
Leasing Enterprise Square Aviation
Founded in 2008
Founded in 2009
Founded in 2006
Founded in 1991 SMBC acquired RBS JV between CIT and
CDB leasing acquired Aviation Capital Century Tokyo
Shenzhen Financial
Leasing co.
ccb financ
Founded in 2000
Founded in 2010
Bohai acquires
Founded in 2007 Avolon and CIT
Founded in 1969
and acquired by
Shinsei Bank in 2005
Source: AirFinance, CALC, DBS Bank

Page 18
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Industry Focus
Aircraft Leasing
Chinese lessors to the fore
Post-2007: Chinese banks enter the foray after deregulation. Bank-backed aircraft lessors in China. The large majority of
After the China Banking Regulatory Commission (CBRC) China’s top aircraft lessors are supported by the country’s top
relaxed regulations on aircraft leasing in 2007, many financial banks. Examples of these are:
institutions, led by China’s big banks such as ICBC, CCB, CDB,
Minsheng, CMB, and Bank of Communications, started  China Development Bank (“CDB”) Leasing
building up their aircraft-leasing arms and developing their (Listed in the Hong Kong Stock Exchange in July 2016)
own capabilities and scale in this segment.  Industrial and Commercial Bank of China (“ICBC”)
Financial Leasing
Top China aircraft lessors (In no particular order)
CDB Leasing
 Minsheng Financial Leasing
ICBC Financial Leasing  China Merchants Bank (“CMB”) Financial Leasing
BOC Aviation  Bank of Communication Financial Leasing

CALC  China Construction Bank (“CCB”) Financial Leasing
Minsheng Financial Leasing  Bank of China (“BOC”) Aviation
CMB Financial Leasing
(Listed in the Hong Kong Stock Exchange in June 2016)
Bank of Communications Financial Leasing  Agricultural Bank of China (“ABC”) Leasing
CCB Financial Leasing

Here, we profile some of China’s top, and up-and-coming
ABC Financial Leasing aircraft lessors.
AVIC Leasing
HNA Group making a big splash as the world’s third-largest
Avolon/CIT (HNA Group)
aircraft lessor through the acquisition of CIT. In January 2016,
Source: Airfinance, DBS Bank
HNA Group, via its subsidiary Bohai Leasing, completed the
China’s fast-growing domestic aviation pie. According to acquisition of Avolon – then a top 10 aircraft lessor globally –
Boeing, China will take delivery of nearly 6,000 new jets worth and merged its existing aircraft-leasing arm Hong Kong Aviation
US$780 billion between 2015 and 2035, as its domestic Capital under Avolon to form a top 8 aircraft lessor.
market is projected to be the world’s largest by 2030. Chinese This was sensationally followed by an agreement reached in
lessors have been growing their share of the domestic aircraft- October 2016 by Avolon to acquire the aircraft-leasing business
leasing business aggressively through acquisitions from other of CIT Group for US$10 billion – which will form a combined
aircraft leasing companies as well as through purchases and business that will have an owned, managed and committed
leasebacks from Chinese airlines. By 2018, according to fleet of 910 aircraft valued at over US$43 billion, – placing the
industry consultant Ascend, Chinese lessors will capture 55% combined entity well ahead of SMBC Aviation and Air Lease as
of the aircraft-leasing market, from 38% in 2013, and nearly the third-largest aircraft leasing business in the world.
zero a decade ago. It is estimated that Chinese lessors now
handle 80% or more of new domestic leasing transactions in We expect that Avalon, having achieved its ‘medium-term
China. target’ in less than a year after it was bought by Bohai Leasing,
will continue to be active in acquisitions and transactions as it
Going international. In 2013, China’s central government had seeks to narrow the gap between itself and the two big boys,
spoken of their desire for local lessors to expand outside their GECAS and AerCap, and to perhaps one day even surpass
domestic market, given the huge potential growth in aviation them.
traffic in the next decades. Prior to this, only a handful of
Chinese lessors, namely BOC Aviation, CDB Leasing, ICBC
Leasing, and Hong Kong Aviation Capital had significant
operations outside China. We have since then seen Chinese
lessors participate more actively in the international markets,
and many of them are now actively linked to transactions
outside China.

Page 19
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Industry Focus
Aircraft Leasing
BOC Aviation – taking SALE to the next level after acquisition. Ping An International Financial Leasing. Ping An International
Bank of China acquired Singapore Aircraft Leasing Enterprise Financial leasing company was founded in 2012 is a wholly
(SALE) from Singapore Airlines and other shareholders in 2006, owned subsidiary of Ping An Insurance Group – which is
and subsequently became known as BOC Aviation. Since then, China’s largest non-state owned company. It has made sizeable
BOC Aviation with Bank of China’s support, has grown to be orders and has been active in the secondary markets for
among the top aircraft leasing companies globally and was a purchase-and-leaseback deals to build up its portfolio, and has
top-5 player globally when it successfully completed its IPO in also been linked with M&A deals in the sector.
HK in Jun 2016.
Selected Chinese aircraft lessor activities: 2015 -2016
Having been nudged out of the top 5 by Avolon’s acquisition of
CIT, prospects for BOC Aviation remains bright as it is looking Timeline Activities
to leverage on new equity raised from its IPO to more
Commencement of trading for Rongzhong
aggressively growth its business. Feb 2015
International Financial leasing
ICBC Leasing – a top three aircraft lessor in China. The leasing China Aircraft Leasing Group (CALC) US$94m
arm of China’s ICBC Bank, ICBC Leasing is one of China’s Jul 2015 Hong Kong IPO - Asia’s first publicly traded
largest aircraft lessors with an owned, managed and committed aircraft lessor
aircraft portfolio of over 400 aircraft. The portfolio is primarily Newly set up Ping An International Financial
Jul 2015
made up of Boeing and Airbus aircraft, with a spattering of Leasing aviation business
Embraer and Bombardier planes. According to its website, ICBC Two new lessors entered the market
Leasing has 48 airline customers in South America, Europe,  Hong Kong Financial Group Bridge Partners
July 2015
Africa, the Middle East and Asia. opened an aviation division
 Astro Aircraft Leasing launched
With over 100 aircraft on order, ICBC Leasing is well positioned Bohai Leasing; a subsidiary of HNA Group
to continue growing and remain one of the country’s and Sep 2015 acquired Avolon (the world’s third largest aircraft
world’s top lessors. lessor at the point of time)
BOC Aviation, an arm of Bank of China debut on
CDB Leasing – China’s largest diversified lessor. The leasing arm June 2016 the Hong Kong Stock Exchange with a US$1.1bn
of the China Development Bank, CDBFL focuses on aircraft and IPO.
infrastructure leasing mainly in China. As at end June 2016, China Development Bank Leasing (CDB) Hong
CDB Leasing had a portfolio of 184 owned aircraft, 11 Jul 2016
Kong US$800m IPO
managed aircraft and 214 committed aircraft. This consisted
Avolon agrees to acquire CIT’s aircraft leasing
mainly of narrow body aircraft, such as the A320 family and Oct 2016
B737-800, and wide-body aircraft including the A330 and business for US$10bn
B777. CDB Leasing had 41 airline clients in 22 countries.
Source: Company filings, DBS Bank
With committed aircraft that is well over its current owned
portfolio, CDB Leasing is positioned to grow firmly in the years
ahead.
CALC – a growing independent lessor in China. Established in

2006, CALC had grown its fleet to 81 aircraft by end 2016,
leased to 16 airline customers in Asia and Europe. With a firm
order book for 92 aircraft from Airbus and potential for more
from pop-ups and purchase & lease-backs, CALC is well poised
to grow its fleet to at least 173 by 2022.
CALC has also been growing its earnings through the sale of its
finance lease receivables to recycle its capital and grow its
business, and also has a 49% stake in an aircraft disassembly
business based in Harbin that is slated for commencement in
2017. This could help push CALC to become a true full value
chain aircraft solutions provider.

Page 20
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Industry Focus
Aircraft Leasing
Japanese lessors: Re-emerging once more
Pioneers in aviation financing. The Japanese were one of the Selected profile of top aircraft lessors in Japan
earliest players in aircraft leasing, with the establishment of
Showa Leasing in 1969. In the 1980s, the Japanese were a  SMBC Aviation Capital (“SMBC”) was established as a
major source of aviation financing. result of a US$7.3-billion acquisition of Royal Bank of
Scotland’s aircraft-leasing business by leading Japanese
Re-emergence. While Japanese banks have always figured institution Sumitomo Mitsui Banking Corporation. SMBC
strongly in domestic aviation financing, they have re-emerged in Aviation Capital is based in Dublin, Ireland. It is today
recent years in the global aviation market, as they seek higher among the world’s top 5 aircraft-leasing companies, with
returns and lower risk than traditional corporate lending. With 669 owned, managed, and committed aircraft in its
the purchase of RBS Aviation Capital by Sumitomo Mitsui portfolio as at the end of September, 2016.
Financial Group (SMBC Aviation) and Mitsubishi UFJ’s  ORIX Aviation was founded in 1991 as part of ORIX
acquisition of Jackson Square Aviation, Japanese lessors have Corporation. a Japanese financial conglomerate with
once more returned to the fore. businesses in asset lending rentals, property leasing,
insurance, and investment management. It has presence in
A Japanese financing structure: JOL or JOLCO (tax leases) 30+ countries, with 60+ lessees.
The Japanese have been prominent in aircraft leasing since the
 Jackson Square Aviation is a San Francisco-based lessor
2000s, helped by their very own Japanese operating lease with
which was acquired for about US$1.3 billiion in 2013 by
call option (“JOLCO”) or Japanese operating lease (“JOLs“). A
Mitsubishi UFJ Lease & Finance (“MUL”), one of the largest
JOLCO is an operating lease fully or partially funded by a
leasing companies in Japan by assets.
Japanese-domiciled source of funds. Under this structure,
Japanese investors would plough back profit into financing  MC Aviation Partners (“MCAP”) was founded in 2008
aircraft purchases in exchange for tax benefits and depreciation- as the wholly-owned leasing-and-trading arm of Mitsubishi
allowances claims It typically takes the form of an SPV with Corporation, and currently owns and manages a fleet of
equity provided by Japanese equity investors (typically 20%- over 100 aircraft.
30%) and the remainder financed by debt. has helped Japanese  Century Tokyo Leasing Corporation (“TC Lease”)
lessors become significant players in the aircraft-leasing space. Century Tokyo Leasing Corporation was established in
2009 via a mergerof Century Leasing System, Inc. and
JOLs or JOLCOs are essentially like conventional operating or Tokyo Leasing Co., Ltd.
finance leases but the depreciation benefits that allow Japanese  Showa Leasing is a pioneer in the aircraft leasing
investors to decrease the taxable part of their funds end up space; Founded in Tokyo in 1969 as a general leasing
being shared by lessor and lessee (in the form of lower lease company, Showa is Asia’s first aircraft leasing firm. It was
rates). Since JOLs or JOLCOs are also available to foreign lessees, subsequently acquired by the Shinsei Bank Group in 2005
the availability and benefits offered by JOLs and JOLCOs have and is now the financial and operating leasing arm of
helped Japanese lessors become significant players in the Shinsei Bank.
aircraft-leasing space.
Top Japanese lessors
Top Japanese Lessors

SMBC Aviation Capital
ORIX Aviation
Jackson Square Aviation
MC Aviation Partners
Century Tokyo Leasing Corporation
Showa Leasing
Mitsui Busaan Aerospace
Source: Airfinance Journal, DBS Bank

Page 21
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Industry Focus
Aircraft Leasing
Other non-traditional lessors
Airline Lessors. The first airline-lessor was run by the now- supports remarketing and sales, contracting, configuration, and
defunct Ansett Australia, which established its leasing arm strong technical management of the assets toextract the most
Ansett Worldwide Aviation Services in 1985. It was later sold to value from the aircraft.
Morgan Stanley Dean Witter in 2000 for US$600 million and
rebrandedin 2004 as AWAS – one of the top 10 aviation lessors 3) Airline-lessors may not have the cost-of-funding advantage
by fleet size. Similarly, Singapore Airlines also set up a leasing that many large or bank-backed lessors have.
arm known as Singapore Aircraft Leasing Enterprise (SALE) –
jointly with Boullioun Aviation Service (in 1993) – which was Below, we briefly profile three prominent airline-lessors that
sold to Bank of China in 2006 for US$965 million; SALE has collectively have over 1,000 aircraft committed for delivery.
become one of the world’s largest aircraft-leasing companies.
AirAsia’s wholly owned Asia Aviation Capital (AAC). Asia
Aviation Capital based in Labuan, Malaysia was primarily set up
The rationale for airlines to set up a leasing business as a wholly-owned subsidiary with the objective of providing
We’ve seen in recent years a number of airlines setting up their aircraft-leasing services to low-cost carrier, AirAsia Group. AAC
own leasing arms which, in addition to leasing to their own is responsible for acquiring, financing, leasing, remarketing, and
affiliated airlines, also lease to third-party airlines. The more selling aircraft for and on behalf of AirAsia Group’s affiliates
prominent names include Indonesia’s Lion Air, Malaysia’s outside Malaysia. Recently, AirAsia said that an undisclosed firm
AirAsia, and Norway’s Norwegian Air Shuttle. We believe there had made a US$1-billion offer for AAC and the group has
appointed bankers to explore the sale of a stake in AAC.
are three main reasons for this phenomenon.
Lion Air’s Transportation Partners (TP). Transportation Partners
1.) Seeking a higher, stable and more diversified income stream. was set up in 2011 in Singapore as a company primarily
The airline business is cyclical, highly dependent on oil prices involved in the leasing of aircraft and related services to Lion
and global GDP growth, and hence on passenger demand. The and Lion-affiliated airlines, as well as to external customers. Its
leasing business enables airlines to build a new, more stable, first inroad into external aircraft-leasing was in 2014, when it
and diversifiedrevenue stream which also hedges against signed a deal to lease three B737s to China’s 9 Air (subsidiary of
Juneyao Airlines). In 2014, Indonesia’s largest privately-owned
volatility in the US dollar. To quote Norwegian Air Shuttle’s chief
airline had a backlog order of 500 aircraft worth over US$20
executive Bjorn Kjos, “They (aircraft lessors) have a fantastic billion, with deliveries over ten years. Focusing on both growth
bottom-line. They earn all the money the airlines should have markets (China, India) and developed aviation markets such as
earned.” USA and Japan, Lion Air hopes to further expand its scale in
third-party aircraft leasing beyond its fleet of six aircraft as at
2) Bulk discount. It’s an open secret that the more planes you 2015.
order from the OEMs e.g. Airbus and Boeing, the larger the
discount. Having a leasing arm to place the planes helps an Norwegian Air Shuttle. The Oslo-based carrier set up a leasing
airline place larger orders and hence obtain a larger discount, arm based in Ireland, and in 2012, placed orders for more than
which ultimately boosts profits. 200 planes to be delivered by 2020. It has already leased 12
aircraft to Hong Kong-based HK Express, among others. As
3) Redistribute surplus aircraft. Having a leasing arm could also with other airline-lessors, Norwegian’s leasing entity will
help an airline place out surplus aircraft in times of lower develop its own fleet by selling or leasing surplus aircraft to
demand, though this would be less true in the event of a third parties while renewing the fleet and enabling high
downturn in global air travel demand. utilisation via their leasing operations. The subsidiary in part
would also enable Air Shuttle to manage its currency-
Challenges facing airline-lessors mismatch exposure: loans denominated in the US dollar and
aircraft balance-sheet values which are translated into the
1) Given their association to particular airlines, airline-lessors are Norwegian krone.
generally less successful in diversifying their customer
concentration as compared to non-airline lessors (i.e. In February 2016, it was reported that Norwegian Air Shuttle
independent or bank-backed leasing companies), and thus face will look into spinning off this business, including the
greater difficulty in accessing maintenance and other relevant possibility of listing it or selling a stake.
records pertaining to the leasing business.
2) The business of aircraft-leasing requires highly technical skills

that are different from running an airline and which carriers do
not typically possess; they include building infrastructure that

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Industry Focus
Aircraft Leasing
Hong Kong’s tycoons join the party Potential transactions in the aviation leasing space
Li Ka-shing’s Accipter and Vermillion Aviation. The wholly- We are likely to see more deals and transaction in the aircraft
owned aircraft-leasing arm of CK Hutchison Holdings, leasing segment globally, with Asian lessors in the mix.
Accipter, was established in 2014 and reportedly bought 18
planes from units of GE Capital Aviation Services for around 1. AirAsia’s leasing arm - Asia Aviation Capital. Bloomberg
US$714.8 million in the same year to kick-start its business. reported in Dec 2016 that AirAsia had received a dozen
Accipter currently owns 43 planes. bids for its aircraft leasing unit, mostly from Chinese leasing
firms, which included the leasing arms of China Merchants
Cheung Kong Holdings was also reported in 2014 to have Bank and Ping An Insurance. According to the report,
formed a joint venture, Vermillion Aviation, with Mitsubishi AirAsia is seeking buyers for a majority stake in Asia
Corp’s MC Aviation Partners to buy planes with a combined Aviation Capital, which it has valued at about US$1bn.
appraisal value of US$800 million; they have plans to grow the
venture’s assets to US$5 billion within a few years. 2. Asian lessors interest in AWAS. It was reported by
Bloomberg in December 2016 that Dublin-based AWAS
In December 2016, Cheung Kong Holdings announced it has been put up for sale by its private equity owner Terra
would be buying Accipter (CK Capital) from CK Hutchison for Firma, that could value the transaction, including debt, at
HK$7.6 billion. This is probably to consolidate the aircraft- US$7bn. According the report, interested parties include Li
leasing business under Cheung Kong Holdings. Ka-Shing, Ping An Insurance, as well as other Asian lessors,
mostly Chinese. In March 2016, it was reported by Reuters
Dato Dr. Cheng Yu-tung’s two aircraft leasing joint-ventures. that Terra Firma had rejected two bids from HNA Group for
Chow Tai Fook Enterprises invested in its first aircraft-leasing AWAS, and in 2015, AWAS had already sold a portfolio of
joint venture Goshawk Aviation in 2013 with Investec and the 90 planes to Macquarie Group.
Cheung Kong Group.
3. Potential listing of Aviation Capital Group (“ACG”).
Joint venture #1: Goshwak Aviation. After further Privately held ACG which is a wholly owned subsidiary of
restructuring, Chow Tai Fook Enterprises and NWS Holdings Pacific Life Insurance Company announced that it was
(both owned by Cheng Yu-tung) now own 50% each of considering an IPO back in December 2015 which would
Goshawk. Goshawk focuses on younger, narrow-body allow the aviation leasing arm to gain access to additional
commercial aircraft for leasing to international airlines. As at capital in order to pursue its growth and expansion
January 30 2015, Goshawk’s portfolio consists of 27 aircraft. strategy.
Joint venture #2: Bauhinia Aviation Capital. In 2016, Chow Tai 4. Minsheng Financial Leasing Co. IPO. Minsheng Financial
Fook Enterprises and New World Development started their Leasing Co. Ltd which controlled by China’s Minsheng
second aviation concern by forming a three-way joint venture Bank has publically stated that it could look to go public in
with Aviation Capital Group. Chow Tai Fook and New World Hong Kong and/or Shanghai by 2018.
will each own 40 % of the aircraft-leasing investment
company, Bauhinia Aviation Capital, while Aviation Capital will 5. Listing of other Asian lessors. Following CALC, BOC
have the remaining 20%. Bauhinia Aviation seeks to expand Aviation and CDB Financial Leasing, we believe that there
its aircraft portfolio to 50 narrow-bodies with an initial capital are other Asian lessors, besides those mentioned above,
commitment of US$600 million from the shareholders. that could look to list their business to tap for new equity
to fund their growth.

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Industry Focus
Aircraft Leasing
The attractiveness of aircraft leasing
Indexing aircraft leasing returns. Ascend created the Ascend out 12-18 months in advance, this further enhances earnings
Aircraft Investment Index (AAII) that simulates the way an and earnings growth visibility for lessors.
aircraft operating leasing portfolio functions and its respective
unlevered returns over the period of measurement. The Higher and more consistent profitability. For investors who
underlying model’s inputs are based on Ascend’s historical crack the high barriers of entry of capital and technical expertise
needed to manage an aircraft leasing business well over a
Current Market Values and Current Market Lease Rates
sustained period, it has been shown to offer a higher and more
(“CMLR”) to mirror past circumstances. When calculating the consistent ROE than running an airline business (well).
monthly returns from the portfolio, the model includes factors
such as asset appreciation/depreciation, lease cash flow, lessor Singapore Airlines’ ROE vs BOC Aviation ROE (10-year)
fees, capital expenditure for new acquisitions and capital gains
from asset disposals (if any). 18.0%
16.0%
Firm returns (unlevered) with relatively low volatility. The AAII 14.0%
demonstrates achievable annual core unlevered returns of 6.4%
12.0%
for the 1991-2015 period, with a return volatility of 5.5%. The
10.0%
remarkably smooth shape of the AAII curve contrasts with the
more volatile lines for the other benchmarks. The dips in the 8.0%
AAII curve after the recessions of 2001 and 2008 are small 6.0%
compared with the steep falls for other indices, while the 4.0%
growth for the rest of the period is noticeably stable and devoid 2.0%
of any sudden rises, which suggests a low volatility of returns
0.0%
provided by the underlying aircraft operating lease portfolio in
our view.
BOCA SIA*
Stable and predictable cash flows; US$ play. The business of
aircraft operating leasing offers investors predictable and stable
cash flows, given that leases typically have a very long tenure Source: DBS Bank; *FYE Mar
(10-12 years for new aircraft) at a predictable rate (either fixed
or floating with reference to LIBOR). With aircraft usually placed
Ascend Aircraft Investment Index (AAII) return performance
Source: Ascend research

* The following aircraft types are included in this AAII sample portfolio: the Airbus A320 and Boeing 737 Classic and NG families, Airbus
A330 family, Boeing 757-200, Boeing 767-300ER and Boeing 777-300ER

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Industry Focus
Aircraft Leasing
Valuations and Equity picks
PE Valuations Current P/B vs Current ROE for aircraft lessors (9 Feb 2017)
Listed aircraft lessors in the US and HK are trading at an average 25.0%
of 9.7x current earnings, declining to 8.6x forward earnings, CALC
with the range being fairly tight for the 7 companies in the peer
group. In HK, BOC Aviation is the cheapest in terms of PE, 20.0%
trading at 8.5x current PE, declining to 7.5x PE – substantially
below the peer average. Meanwhile, CDB Financial Leasing is
15.0% AerCap BOCA
the most expensive of the trio in HK – at 10.6x current PE,
declining to 9.3x forward PE.
10.0% Air Lease
FLY
PB Valuations CDB Leasing
Other than CALC, which is trading at 2.2x current P/B, against a Air Castle
projected current ROE of 22.6%, the rest of the aircraft lessors 5.0%
are generally trading at around 1x to 1.1x current P/B.
0.0%
In terms of P/B vs ROE, BOC Aviation seems to offer more value,
0.00 0.50 1.00 1.50 2.00 2.50
as it is trading at similar P/B to other lessors Financial Leasing
despite generating higher ROE. Source: ThomsonReuters, DBS Bank
Dividend Yields
While on average the sector only offers a dividend yield of
2.1%, there are 2 names that offer a decent yield. Based on
consensus estimates, CALC is offering a prospective yield of
3.9%, which is fairly decent in our view.
Aircraft Lessors in US and HK (Prices as of 9 Feb 2017)

9 Feb 2017 Mkt Cap --------- PER ---------- Price-to-Book ROE Crnt
Company Last Px US$m Hist Crnt Forw Hist Crnt Hist Crnt Yield
AerCap Holdings NV USD 45.94 9,204 7.3 7.3 7.5 1.10 0.99 15.0% 13.5% 1.4%
Air Lease Corp USD 37.86 3,894 13.8 11.1 10.2 1.31 1.17 9.5% 10.6% 0.5%
Aircastle Ltd USD 22.78 1,791 14.1 13.0 10.1 1.03 0.98 7.3% 7.6% 4.3%
FLY Leasing Ltd USD 13.91 451 6.6 8.2 7.2 0.73 0.65 11.0% 8.0% 0.0%
CALC HKD 9.23 797 13.1 9.5 8.1 2.64 2.17 20.2% 22.8% 3.9%
BOC Aviation HKD 40.60 3,631 8.5 7.5 1.08 12.8% 2.4%
CDB Financial Leasing HKD 1.92 3,128 10.6 9.3 0.99 9.4% 2.5%
Average 11.0 9.7 8.6 1.36 1.15 12.6% 12.1% 2.1%
Source: ThomsonReuters (Consensus estimates)

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Industry Focus
Aircraft Leasing
BOCA is our top pick (BUY, TP HK$48.40) Price Relative charts
BOCA offers investors a firm alternative to airlines to the BOCA

continued growth of air travel globally and in particular Asia, as HK$ Relative Index
the region’s largest listed player. BOCA’s earnings and cash
flows are highly stable and predictable, and the group also 47.3 233
possesses strong competitive advantages such as low cost of 45.3 213
funding, strong track record (22 years of continuous profit), and 193
43.3
an experienced management team. 173
41.3
153
We like BOC Aviation (BOCA) for 1) its size and scale (top 5 39.3
133
aircraft lessor by fleet size, including order book, globally), 2) 37.3
113
attractive portfolio characteristics (well-diversified customer 35.3 93
base, average fleet age of just 3.2 years with average remaining
33.3 73
lease of 7.3 years), 3) firm earnings outlook (12.5% EPS CAGR May-16 Aug-16 Nov-16
over 2015-2018F) backed by a large order book of 232 aircraft
(at end-1Q16) to be delivered over the next few years. At 8.5x BOC Aviation Ltd (LHS) Relative HSI (RHS)
FY16F PE, declining to 7.5x FY17F PE, and trading at just over
1x FY16F P/BV with 13.8% ROE, which is set to improve as the
group increases its leverage post-IPO, current valuations are
attractive.
CALC
Initiate coverage on CALC with a BUY, TP HK$11.60
HK$ Relative Index
Established in 2006, CALC has grown its fleet to 81 aircraft by
end 2016, leased to 16 airline customers in Asia and Europe. 237
With a firm order book for 92 aircraft from Airbus and potential 14.5 217
for more from pop-ups and purchase & lease-backs, CALC is 197
12.5
well poised to grow its fleet to at least 173 by 2022. Hence,
177
CALC’s lease income is projected to grow steadily over the next 10.5
157
few years, which is further supplemented by gains from the sale
137
of its finance lease receivables. CALC also has a 49% stake in an 8.5
aircraft disassembly business based in Harbin that is slated for 6.5

117
commencement in 2H17 and targets to disassemble up to 20 97

aircraft per annum in 2018. If successfully executed, this could 4.5 77
provide further earnings and share price upside. Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17
We value CALC based on a blend of 10 FY18 P/E and 2x FY18 China Aircraft Leasing Group (LHS) Relative HSI (RHS)
P/B to derive a 12-month target price of HK$11.60. The higher

than peer average target P/B multiple of 2x reflects the Group’s
industry-leading ROE of over 19%.
CDB Financial Leasing

CDB Financial Leasing – China’s largest diversified lessor
HK$ Relative Index
The leasing arm of the China Development Bank, CDBFL focuses 2.2
144
on aircraft and infrastructure leasing mainly in China. The 2.1
134
company experienced significant impairment losses in 2015 as a
2.0 124
result of the economic slowdown but managed to stay
114
profitable nonetheless. With the focus on filtering of risker 1.9
104
clients, and on the aircraft leasing and infrastructure segments, 1.8
94
profitability should improve ahead. 1.7
84
1.6 74
With profitability set to improve for 2016 and in 2017 on lower Jul-16 Oct-16 Jan-17
impairment losses, we see the stock’s fair value at 1x P/B, or China Development Bank Financial Leasing (LHS)
Relative HSI (RHS)
HK$2.01, against a projected ROE of 10.3% for 2016E and
9.8% for 2017F. Source: DBS Bank, Bloomberg Finance L.P.

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Industry Focus
Aircraft Leasing
Key Risk Factors
In our view, the key factor that drives returns in aircraft leasing, Oversupply worries. The most common concern for investors
in both the short term and long term, is the aircraft supply- seems to be that of aircraft oversupply. Keen competition
demand dynamics. among airlines and strong order-books at OEMs Airbus and
Boeing, along with news that both manufacturers are ramping
Airbus and Boeing duopoly. The most widely and commonly up production, worry investors.
used aircraft types that carry the vast majority of today’s air
traffic are mainly produced by Airbus and Boeing. According to Our view is that given the OEM duopoly in aircraft supply,
CAPA, nearly 89% of the seats in the global fleet in service aircraft supply-demand should be balanced in the long-term as
today are attributed to Boeing and Airbus. The market for it is in the OEM’s interest to promote a balanced situation. A
aircraft (passenger and freighter equivalent of 100 seats or stable supply-demand picture helps aircraft retain value, which
more has gradually evolved into a duopoly of Europe’s Airbus is positive for airlines, lessors as well as the OEMs themselves.
Group and US-based Boeing. Several smaller players (Fokker,
British Aerospace, and Lockheed Martin) have exited the market In the short term, we also see the aircraft supply-demand
over the years, and Boeing took over long-time rival McDonnell- environment as relatively benign as 1) global load factors are
Douglas (MDC) in 1997.Airbus and Boeing today account for near historic highs, 2) the growth rate of OEM production
98% of deliveries in the market for 100+-seat passenger jets matches growth of expected demand, 3) order-books are
and freighter variants. While Embraer and Bombardier have a strong, and 4) storage/retirement is already at low rates.
small share of this market, they pose a challenge only to the
smaller players. Interest rate exposure. A key feature or driver of an aircraft
lessors’ earnings is the net spread (the difference between
Meanwhile, COMAC of China and Irkut in Russia are developing average yield on aircraft portfolio and average cost of debt) that
new 150-seater single-aisle programmes, the C919 and MC-21, a lessor earns. This means that aircraft lessors have interest-rate
respectively, that may challenge this duopoly to some extent. risk. In an environment of rising interest rates, investors may
However, the success of these programmes, in terms of both have reason to fret.
development and acceptance by the market, remains to be
seen. Generally speaking, aircraft lessors are well aware of this risk
and manage it via 1) natural hedging where fixed-rate leases are
Airbus and Boeing duopoly in aircraft of >100 seats funded by fixed-rate debt, and floating-rate leases have
floating-rate debt, 2) active interest-rate hedging using
derivatives such as caps and swaps, and 3) trading (sale) of
aircraft in the portfolio with interest-rate exposure.
Furthermore, with demand for popular aircraft types being

robust and the backlog for such aircraft being large – along
with healthy airline profits generally – lessors should have some
pricing power in terms of lease rates for new aircraft.
As a result, we believe that lessors’ earnings should not be

impacted much by rising interest rates, unless the pace is
sudden and/or the quantum of the hike is large.
Overpaying for aircraft in the secondary market. We believe

that lessors without a substantial order-book to drive its organic
Source: Flightglobal Fleet Analyzer growth could face lower returns if it can only look to grow via
acquisition of aircraft from other lessors or through purchase
and leasebacks from airlines. This is given the intensifying
competition from new entrants into the aircraft-leasing space.
Paying a premium for such assets would result in lower returns
for the lessor.

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Industry Focus
Aircraft Leasing
Low fuel prices: a double-edged sword. We are currently in a Delays in delivery or failure of deliveries. For most traditional
period of low fuel prices. While BrentBrent crude has lessors who place their orders directly with the OEMs, the
rebounded from a low of less than US$40 a barrel a year ago, it manufacturers’ ability to deliver the aircraft on time is of utmost
remains relatively cheap currently. This has helped boost airline importance. Failure to deliver or a delay – which are
profitability, and in this buoyant environment for airlines, commonplace for aircraft with new technology – could result in
demand for leasing of aircraft (new or used) as well as lease lost or delayed revenues and brand equity with airline
rates have remained firm. Low oil prices haveIt has also reduced customers.
the risk of airlines defaulting on their lease payments.
Newer technology aircraft may impact aircraft values and
On the other hand, the low- fuel-price environment means that returns of older aircraft. The introduction of new technology
older, less fuel-efficient aircraft are now more attractive or could affect the values of older aircraft in the long term, which
viable to operate. With aircraft being brought out of storage would impact returns. The impact varies for different aircraft
and a lower rate of aircraft retirement, demand for new aircraft types, and is largely dependent on operator base, fleet size,
may be affected. However, we do observe that orders for new production run and order backlog. The larger the operator
aircraft and OEM order-books, especially the variants with base, existing fleet size, production run, and order backlog, the
newer technology and aremore fuel-efficient, remain robust and better the mitigation. A good example of this would be the
most lessors have also generally placed out their new aircraft 12 next-generation A320neo and Boeing 737 MAX aircraft that
months or more in advance. have recently entered (in the case of the neo) or are soon to
enter (the MAX) the market. It will take many years of strong
Cyclical Industry. A lessor business is almost entirely dependent production of these two latest models to challenge the existing
on the willingness as well as the ability of airline customers to fleet size of their predecessors. According to CAPA, there are
enter into new aircraft operating leases and to pay and perform currently over 6,700 of the A320 family of the aircraft in service
their obligation leases. During a downturn, the lessee may find and over 6,800 of the B737 family of the aircraft in service.
it difficult to honour cashflow commitments, leading to delays
in payments, and in the worst case, could face bankruptcy. Aircraft lessors manage this risk by 1) mainly focusing on
Geopolitical risks, war, acts of terrorism, epidemics, and natural popular in-demand aircraft types with a large operator base, 2)
disasters could also impair the lessees’ ability to honour their ordering new generation aircraft and 3) trading and selling of
lease terms. Increasing competition in the leasing space, high aircraft.
fuel costs, and worsening labour conditions are some other
factors. Liquidity shock. Aircraft lessors’ success hinges highly on access
to debt and capital markets and liquidity. A market shock with
Downgrade in ratings may lead to higher cost of debt and/or the magnitude of the 2008-2009 global financial crisis, which
refinancing risk. A lessor’s efficiency in obtaining funds is crucial led to the drought of liquidity, could paralyse the capital-
to its operating business model. Its ability to borrow and the intensive and high-gearing business model of aircraft lessors.
cost of funds hinge strongly on its balance-sheet strength and
credit ratings; should a lessor’s credit rating be downgraded for IFRS 16 ‘Leases’. Come January 2019, IFRS 16 ‘Leases’ will be
whatever reason, there could be some serious consequences on rolled out and it will bring most leases on lessess’ balance
its cost of funding and/or ability to borrow and refinance its sheets. For airlines, this means that operating leases will have to
be recognised on the balance sheet and will have an impact on
loans as well as ability to compete.
gearing ratios, asset return metrics, and also potentially impact
reported net profits.
Lessees may fail in maintenance obligations. The key value-
generating asset is the aircraft itself. Under each lease While IFRS 16 should not result in substantial changes in
agreement, the lessee is primarily responsible for maintaining accounting for lessors, there could be an impact on
the aircraft and complying with all regulations on aviation safety theirbusiness models and how the leases are structured, given
and airworthiness. If the lessee fails to properly maintain the the significant accounting impact that IFRS 16 would have on
aircraft, this could impact the sale value or re-lease value of the the lessees (airlines). For example, we could see lease periods
aircraft at the expiry of a lease, which imparts residual risk and being shortened.
could affect its overall fleet portfolio values.

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Aircraft Leasing
Appendix

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Aircraft Leasing
Aircraft leasing 101
Operating vs finance lease. Leasing is a form of asset financing The key differences between the two, however, lie in currency
often used by businesses, which allows the lessee to make denomination and tenure. While real estate contracts are often
periodic payments in exchange for the right to use an asset denominated in their respective local currencies, aircraft-
over a contracted period, instead of incurring the full cost of operating leases are largely denominated in the US dollar.
asset-ownership upfront. Leases are typically classified as Aircraft-operating leases also carry longer contractual terms, of
finance or operating leases, depending on the degree to which 6-12 years on average, compared to about two years for real
all the risks and rewards of ownership are transferred to the estate leases. In addition, terms for asset mobility and
lessee: maintenance payment also often differ.
In an aircraft-operating lease, the risks and rewards of aircraft Aircraft-leasing popular among airlines. A variety of funding
ownership sit with the operating lessor but risks and rewards sources are available to airlines for growing their fleet,
of operations remain with the lessee (the airline). The lessee is depending on their business models, operating environment,
obliged to make regular rental payments in exchange for the and financial status. Operating leases have been increasingly
right to operate the aircraft over an agreed fixed term. popular over the last five decades as they offer airlines fleet
Meanwhile, the lessor retains the right and discretion to sell flexibility and financial flexibility as well as shorten the lead
the given aircraft with the attached lease. time for direct purchases or equity-raising. They also reduce
residual value risks for airlines.
Similarly, under a finance lease, the lessee also makes periodic
payments to the lessor over a defined period, but has typically According to Flightglobal’s Fleets Analyzer, smaller airlines
(1) has the added option to purchase, or (2) is automatically (with a fleet of less than 20 aircraft) were estimated to have
granted ownership of the given aircraft at the end of the lease leased 48% of their fleet while larger airlines (with a fleet of at
term. As such, residual value risks are borne by the lessee least 20 aircraft) had approximately 39% of their fleet on
under finance leases. operating leases in December 2015. Meanwhile, operating
lessors are estimated to have placed approximately 81% of
Key difference between aircraft and real estate operating their total fleet with these larger airlines.
leases The rights and obligations that accrue to lessors and
lessees in aircraft-operating leases are largely similar to that of
property rental contracts.
Percentage of Aircraft Fleets on Operating Lease by Airline Fleet Size (as at December 2015)
Airlines with >= 20 aircraft in fleet Airlines with <20 aircraft in fleet
39%
61%
52% 48%
Operating lease Non operating lease Operating lease Non operating lease
Source: Ascend Flightglobal Fleets Analyzer Source: Ascend Flightglobal Fleets Analyzer

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Aircraft Leasing
How aircraft leasing works. There are three main channels for The lessor usually finances the asset purchase with a mix of
aircraft acquisitions, namely (1) direct orders from OEMs such debt and equity (cash). Prior to delivery, lessors typically collect
as Airbus and Boeing, (2) purchase and leasebacks from airline a security deposit (between 1-6 months of rent) and ensures
customers, and (3) purchase of aircraft from the secondary that the new aircraft and lease agreement are adequately
market, which is further discussed in a later segment. insured.
In general, lessors will first place an order for aircraft directly After taking delivery of the new aircraft (noting delivery lead
with OEMs before sourcing for potential lessees (airline time of about four years, on average), the lessor proceeds to
customers). Once identified, both the lessor and lessee would lease the asset to its airline customer, in exchange for periodic
proceed to negotiate terms for the lease, including periodic lease payments over the contracted lease term. In the event
lease obligations, tenure, maintenance obligations, and that the lessee defaults, the operating lessor will repossess and
remarketing. remarket the aircraft.
The lessor also has the option to dispose of the asset - with
and without the attached lease – in the secondary market.
Illustration of a typical aircraft operating leasing model
Source: Aircraft Financing, 4th Edition

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Aircraft Leasing
What’s driving the popularity of aircraft leasing?
Why airlines lease. While there are a myraid of factors contributing to the attractiveness of aircraft leasing as a means of
asset financing from an airline’s perspective, we focus on seven key drivers as highlighted by commercial aviation finance
solutions provider, Investec:
(1) Financial flexibility: Leasing allows carriers to optimise (5) Preservation of capital: Smaller airlines with higher
the use of its capital and focus on operations rather costs of funding can leverage on lessors’
than fleet management. oftensuperior access to capital through leasing.
(2) Avoid large upfront investments: Upon making an (6) Mitigate residual value risk: With leasing, residial
order, the buyer has to make large upfront payments value risks are borne by lessors rather than airlines.
for the aircraft. Through leasing, lessees avoid
significant capital outlay. (7) Asset light model – particularly for LCCs: With the
proliferation of LCCs, leasing lowers the barrier to
(3) Fleet flexibility: Leasing, as opposed to ownership, entry and mitigate as much as possible the
allows carriers to better adapt to changes in aviation significant capital commitments and hence better
market conditions. allow the LLCs to capture market share.
(4) Reduced delivery lead time for new planes: For narrow-
bodies and aircraft with newer technology, delivery
slots are often limited, with long delivery lead times.
Leasing provides airlines with reduced order lead time
compared to direct orders with OEMs.
Why airlines choose to lease
Smallar airlines with higher cost of

Delivery lead time for new aircraft
Leasing requires less upfront funding can preserve capital by
is generally shorter through leasing
investment, and allows airlines to leveraging on lessors’ often
focus their capital on operations superior access to capital through
rather than on fleet management Attractive leasing.
Delivery
Slots
Financial Availability
Flexibility of Capital
Carriers are
Aircraft Which is borne
better able to
manage fleet Fleet
Leasing by lessors
plans under a Flexibility Residual

leased vs Value Risk
ownership
model
Avoid Growth in
Pre-delivery LCCs Leasing is especially popular
Payment among LCCs and start-up airlines
as it allows them to quickly grow
Through leasing, airlines are and capture market share without
able to avoid large upfront significant capital commitments
investments for aircraft
Source: Investec, DBS Bank

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Critical success factors for aircraft lessors Catalogue prices of selected commercial aircraft
Aircraft Model Type List Price US$, million
What makes an aircraft operating lessor successful? Focused on Airbus 2016 average list prices
investing, managing, and trading their fleet, aircraft lessors are
A320-neo Narrow-body $107.3m
fundamentally viewed as financial-service providers.
A321-neo Narrow-body $125.7m
A330-200 Wide-body $231.5m
Often bearing the cost of borrowing, related expenses, and risks
A350-800 Wide-body $272.4m
pertaining to the ownership of aircraft, the individual lessor’s
A380-800 Wide-body $432.6m
success lies in the extent to which it is able to deliver on the
Boeing 2015 average list prices
following:
B737-Max 8 Narrow-body $112.9m
(1) Lower cost-to-value ratio for aircraft purchases B737-Max 9 Narrow-body $116.6m
B747-800 Wide-body $378.5m
Primary sources of aircraft for lessors. The three key channels B777-300ER Wide-body $339.6m
from which lessors typically acquire aircraft are: B787-8 Wide-body $224.6m
(a) Direct from original equipment manufacturers (“OEMs”): Source: Airbus, Boeing, DBS Bank
Direct orders from OEMs typically require pre-delivery
payment financing (PDP) two years prior to delivery. (2) Access to cheaper funding
Meanwhile, operating lessors seek to place out aircraft 12-18
months prior to delivery, on average. Key funding soures. Capital markets provide aircraft leasing
companies with depth and lower cost of funds via:
(b) Purchase-leaseback (“PLB”). Under PLB, operating lessors
purchase new or existing aircraft from airlines, which are (a) Loan products. Faced with higher costs of financing
subsequently leased back to the respective airlines. following the introduction of the OECD’s 2011 Aircraft Sector
Understanding (ASU), the role of export credit agencies
(c) Secondary market. Lessors also have the option to acquire (ECAs) in aircraft financing has gradually diminished over the
a single – or a portfolio of – aircraft from other lessors or years. As such, only 11% of aircraft deliveries in 2016 are
financier-owners. expected to have been financed via EX-IM banks or ECAs.
Access to in-demand technologies and models, which often Meanwhile, nearly 20% of aircraft purchases are financed by
hold better investment value. Aircraft orders with OEMs are commercial bank debt, particularly in Japan and China.
typically placed up to four years in advance for aircraft with the
latest technologies. (b) Debt capital markets. Boeing estimates that about 45% of
aircraft lessor’s funding requirements are sourced from debt
Lessors typically place orders periodically with OEMs to ensure capital market products, including asset-backed securities, as
steady access to newer aircraft technologies, which are more well as secured and unsecured notes/bonds.
efficient than previous generations of aircraft. Examples include
the next-gen Boeing -737 MAX and Boeing -787 Dreamliner, Key benefits offered by debt capital markets. The leading role
which are approximately 20% more fuel-efficient than older played by debt capital markets as a primary source of funding
models, and are thus highly sought after. for aircraft lessors can be mainly attributed to:
Extracting better investment value through bulk discounts. (a) Better access to capital. Lessors are able to reach a wider
Another interesting aspect of direct bulk purchases lie in the investment audience who are often more sophisticated and
substantial 10-30% discount concession (on average) off thus receptive to varying debt structures.
catalogue/list prices, effectively lowering lessors’ all-in aircraft
purchase costs. (b) Liquidity and pricing. Active trading in the secondary
markets could provide debt instruments (issued by aircraft
lessors, in this case) with improved liquidity and pricing
support.

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Industry Focus
Aircraft Leasing
(c) Longer tenor. Unlike traditional bank financing, users of (b) Credit worthiness of the lessee: Lessee (airlines) with lower
capital markets generally have to option to take on longer credit quality are usually subject to higher lease rates.
loan tenors. This provides capital-intensive businesses, such as (c) Acquisition price: The higher the cost of the aircraft, the
aircraft-leasing companies, with greater financial flexibility higher the expected lease payment.
and ability to manage cashflow.
Credit rating plays a pivotal role in funding costs. Lessors’ (d) Aircraft age: All else being equal, a younger aircraft with
funding costs are largely dependent on their respective financial lower maintenance needs (which are borne by lessees) should
strengths. Aircraft lessors with higher credit ratings are thus command a premium in lease rates.
able to raise debt more cheaply.
Meanwhile, issuers with weaker credit ratings may be subject to (e) Level of technology and aircraft type: Helped by
higher risk premiums and typically commit to higher yields – technological improvements, newer aircraft types tend to be
thus incurring higher funding costs relative to higher-rated more cost-efficient (better fuel efficiency, better resistance to
issuers. Therefore, a higher credit rating could serve as a corrosion, etc.) and should thus command a premium.
significant advantage in the capital-intensive aviation industry.
Long-term credit ratings for selected tier 1 lessors* (f) Other variables that may affect lease rates include:
Aircraft Lessor Fitch Ratings

- Interest rates: Often incorporated into the lease rate formula
AerCap BBB-
Aviation PLC B+ - Relevant taxes: Which differs across jurisdictions
Aviation Capital Group BBB
BOC Avaiation A- - Tenor and lease terms: Such as return conditions,
SMBC Aviation Capital BBB+ maintenance and maintenance reserve requirements
*as at 26 July 2016
Snapshot of historical lease rates. Due to higher aircraft
Source: Fitch, DBS Bank purchase costs, wide bodies tend to have higher lease rates.
Depending on model and demand, lease rates for newer aircraft
Enhancing returns through financial leverage. An aircraft- have on occasion risen above US$1m a month.
leasing company typically borrows up to 75% of an aircraft’s
base value while funding the remaining with equity (cash) – According to data provided by IBA and Capital Aviation
which is sizeable considering that an aircraft can cost north of Research, lease rates for narrow-bodies have historically ranged
US$100 million. between US$150,000 to US$400,000 per month.
By financing its aircraft purchases with debt and subsequently
Lease rates for wide-body aircraft (in US$100k) vs 12 mths libor
servicing its loan obligations through aircraft lease payments
collected from its lessees, aircraft lessors with access to cheap
funding are therefore well-positioned to deliver enhanced
returns.
(3) Securing higher aircraft lease rates
Factors driving lease rates. Lease rates are often largely driven
by market forces. Apart from economic conditions, other
factors that come into play when forecasting lease rates
include:
(a) Residual value: Difference between the expected and

actual residual value of the aircraft at the end of the lease
term.
Source: IBA, Capital Aviation Research, DBS Bank

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Industry Focus
Aircraft Leasing
Lease rates for narrow-bodies (in US$100k) vs 12mths libor

Young Phase Due to customised cabins, the first phase for
new aircraft typically lasts 10-15 years. Given
higher demand and lower maintenance
costs, lessors tend to enjoy higher lease rates
and returns during this phase.
Mid-life The second phase is usually shorter, and lasts
Phase 3-8 years. Mid-life aircraft are often
marketed to 2nd- or 3rd-tier carriers at lower
lease rates.
End-of-life This phase is typically the shortest, with the
Phase lowest lease rates compared to the first and
second phases.
(c) Lease extension: On average, 15% to 30% of expiring

Source: IBA, Capital Aviation Research, DBS Bank leases are extended between 20 to 40 months.
Key terms in the lease agreement. Underlying conditions for (d) Other important terms found in lease agreements include:
and responsibilities of both the lessor and lessee in aircraft-
leasing transactions can be found in the lease agreement, and - Commitment fees: Before the commencement of the lease,
typically include: a commitment fee (similar to that of deposits) is paid by the
lessee to the lessor.
(a) Lease tenor: Lease terms typically vary with aircraft type
and region, and are usually shorter for narrow-body aircraft - Security deposit: To mitigate potential losses (in the form of
foregone lease payments and additional remarketing
(3-7 years on average) than wide-bodies.
expenses) for lessors in the event of default by the lessee, the
latter is expected to maintain a cash deposit or letter of credit
At the end of the lease, the lessee is obliged to return the with the lessor prior to delivery.
aircraft to the lessor in good order, and may have the option
to either renew the lease or purchase the underlying aircraft - Insurance: As the lessee usually assumes the operating risk,
at fair market value. they are required to be adequately insured:
Aircraft lease ROE for first, second and third lease  Hull insurance
Hull insurance and insurance designed to protect the
First lease Second lease Third lease
16%
lessor’s aircraft assets and coves all potential loss in the
event of an accident or physical damage, including the cost
14% of the aircraft restoration or placement.
12%
 Liability insurance
10% According to Article 50 of the Montreal Convention 1999,
ROE
8% the leasee is required to have adequate liability insurance

coverage for potential third party liabilities. Premiums paid
6%
are typically a function of the maximum take-off weight
4% and passenger carriage capacity.
2%
- Maintenance reserve: Lessees are generally responsible for
0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
the maintenance of leased aircraft, and may be liable for
Years periodic supplemental maintenance rent payments.
Source: Ascent Advisory Maintenance rents are calculated based on the utilisation of
the airframe, engine, and other essential components
(b) Useful life: The useful life can further be broken down into required to keep the aircraft in service. Once the qualifying
three key phases - each with a different ROE, which affects maintenance has been undertaken, the lessee is usually
lease rates: reimbursed for maintenance rent paid.

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Industry Focus
Aircraft Leasing
For leases that do not entail maintenance rent payments, apart (4) Maximising returns through disposals
from normal wear and tear, lessees are still obliged to return
the aircraft in good order. Realisation of residual value. The residual value of aircraft is only
realised when the lessor or owner disposes of an aircraft from
its current portfolio in the secondary market, and pays off all
outstanding debt related to the given asset.
Different maintenance reserve events and cost structures
Influenced by a host of factors, fluctuation in aircraft values may
Cost Fixed interval Variable interval affect the resale value of aircraft. All else being equal, however,
lessors are often able to register gains on disposal if the
Fixed amortisation of debt outpaces the asset’s rate of depreciation.
 Engine LLPs
cost
The current low-oil-price environment, coupled with airlines’
 Airframe  APU overhaul capacity constraints (as evidenced by the firm order backlog for
maintenance  Engine newer aircraft). has made it more viable for airlines to boost
Variable
Check performance capacity by operating older aircraft, lifting demand and
cost
 Landing gear restoration and secondary valuations for used aircraft in the process.
overhaul overhaul
*LLPs: Life limited parts, *APU: Auxiliary power units Conversely, events detrimental to the demand for certain
Source: IATA, DBS Bank aircraft types (due to operational and safety concerns) or the
broader air travel industry (in the case of an economic
Maintenance reserve trends downturn, for instance) can weigh on the market value of these
20 assets, and may result in potential impairment.
Millions
Appraisers play an outsized role in valuing aircraft. As most

16
aircraft transactions are not publicly disclosed, the
determination of aircraft value is largely left to professional
aircraft appraisers.
12
A blend of both art and science, the valuation of aircraft is
Engine 1 & 4 APU D-check En gine 3 Engine 2 hinged upon the appraisers’ technical expertise, forecasts, and
assessment of the aircraft market.
8
Rule-of-thumb estimation of aircraft value. Passenger aircraft
are often depreciated against an economic life of 25 years but
Source: IATA, DBS Bank in reality, may be able to extend their useful life through
freighter conversions. Further value may also be extracted
Unutilised reserves could help bolster gains on the sale of through the sale of parts.
assets. In the case when aircraft are sold, accumulated
maintenance reserves previously held for future maintenance According to Investec, the impact of depreciation on an
needs can often help lift trading profits from the sale of aircraft. aircraft’s base value can be anywhere between 3% and 9%
p.a., and accelerates as the aircraft ages. While most aircraft
Remarketing aircraft. Approximately 12-24 months prior to values are determined via appraisal, a useful rule-of-thumb
lease expiry, aircraft leasing companies will begin to remarket estimation we can use to gauge aircraft value over time is as
the given aircraft to other potential carriers. follows:
To reduce time spent on remarketing, aircraft in the young Aircraft age Approximate aircraft value
phase are usually marketed to 2nd- or 3rd-tier carriers at lower More than 5 years 70% of initial value
lease rates. More than 10 years 50% of initial value
More than 15 years 35% of initial value
More than 25 years 25% of initial value
Source: Investec, DBS Bank

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Industry Focus
Aircraft Leasing
Drivers of aircraft value
A number of factors play a pivotal role in determining the value

of an aircraft. They can be more simplistically categorised into:
(1) Market drivers, (2) Aircraft factors, (3) Economic drivers
Deterministic factors of aircraft value
Drivers of aircraft values
(1) Market drivers (2) Aircraft factors (3) Economic drivers
 Supply & demand  Aircraft type and specs  Fuel prices
 Product life-cycle  Aircraft technology  Economic cycle
 Market liquidity
 Secondary market
Source: Airline Monitor, Jackson Square Aviation, Airfinance, DBS Bank
(1) Market drivers that affects aircraft value a huge discount Boeing gave for the order – said to
be more than 50% off catalogue prices of US$80.6
million, according to Airway News senior business
 Product life-cycle: Aircraft with a longer production run
analyst Vinay Bhaskara.
tend to retain value better and hence have higher residual
values, as aircraft with longer production runs typically are
more numerous, and hence have better liquidity, wider Stages within the aircraft production cycle
operator base, and a higher market share within fleets.
Stages within the production cycle too have an impact on Early Stable Late
aircraft values.
manufactured
No. of aircraft
• Early stage production aircraft typically do not have

good value as they tend to have higher operating
weight and thus higher operating cost as well as
other issues associated with early production. OEMs
therefore may thus price them more competitively.
• Mid-stage production aircraft will have most, if not

all, production issues ironed out and units tend to
have much more stable aircraft values and depreciate
at a more balanced and predictable rate over time.
Time for production run
• Late production units are often subject to larger Source: Airline Monitor, Jackson Square Aviation, Airfinance, DBS Bank
decline in value given they are competing against
new offerings which tend to offer better efficiencies.
These however are compensated by large discounts
typically offered by the manufacturers. For instance,
United Airlines in early 2016 turned down aircraft
with new technology such as the Bombardier C-series
in favour of 25 additional late-stage B737-700s that
will be soon be discontinued. This was likely driven by

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Industry Focus
Aircraft Leasing
 Supply and demand: The number of stored aircraft is often  Secondary markets: If there is sufficient market liquidity as
used to gauge the health of the airline industry. A high addressed by all the other factors above, the aircraft asset
number of stored aircraft implies weak market demand, can be easily disposed of in the secondary market, which
pushing down valuations, and vice versa. helps it achieve the highest possible value in a secondary
sale. Secondary markets tend to be strong in up-tick
For any particular type of aircraft, it’s important to know if
economic cycles with many sources of financing available.
the aircraft is being stored because of technical or
Passenger-to-freighter conversion and the suitability of an
economic obsolescence, in which case these aircraft are
aircraft type to do so also helps with the secondary value of
likely to remain parked forever; if it is being stored due to
an aircraft.
the cyclical nature of the airline business, that would imply
an oversupply of the aircraft. An example for the first  Aircraft value cycle largely driven by market cycle
scenario would be out-of-production aircraft types such as The aircraft value cycle may be understood by considering
the MD-80, and an example for the second scenario would the relationship between Current Market Value (“CMV” -
be a 747 freighter. the spot trading value) and Base Value (“BV” - underlying
long term economic value). The chart below illustrates the
 Market liquidity: Further de-composed by 2 key factors:
previous and current aircraft value cycle, demonstrating the
(a) Order books: An aircraft’s orderbook reflects the cumulative proportion of installed fleet compared to CMV /
number of firm orders for an aircraft type, broken down BV. It shows that the trough of the prior (2001 — 2008)
into the number of deliveries and the number on firm cycle in July 2002 and the trough of the current cycle are
backlog. It provides clarity on the market share (and quite similar. We also note that the peak of the prior cycle
popularity) an aircraft type has achieved, and is one of the in July 2008 lies considerably to the right of the current
most important drivers of aircraft value and its retention. position in the cycle. By February 2016, aircraft market
values have only improved by about half as much as they
(b) Market Penetration: The market penetration an aircraft did in the prior cycle, indicating potentially further upside
type has achieved is another important driver of its value. since.
The higher the customer (operator) base and the wider the
geographical base, the better the aircraft value.
Aircraft value cycle (Feb 2016)
Source: Ascend value from Flightglobal, DBS Bank

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Industry Focus
Aircraft Leasing
(2) Aircraft factors  Aircraft specifications. Production aircraft are usually

offered with various specifications in 1) engines and
 Aircraft type. An aircraft type (or family) in particular has a configuration, 2) operating weights, and 3) cabin builds
strong influence on its value. This is largely due to the and Buyer Furnished Equipment (BFE) options. Differences
difference in the rate of market value depreciation versus in these specifications will impact the value of an aircraft
book value deprecation. Lessors tend to favor aircraft with and in the case of cabin builds and BFE options, highly
standardized aircraft tend to have a higher resale value.
low depreciation as there is higher residual value and
hence, it provides more certainty in terms of the aircraft  Technology. The latest variant of aircrafts such as the
value as and when the planes are traded in the secondary Boeing’s B787 Dreamliner features newer technology and
markets. composite material construction which is lighter and less
susceptible to corrosion.; a switch to major electric
Furthermore, there exists differences even within aircraft of architecture instead of the bleed valve system creates
the same family, strong reliability and reduces more weight, given the
smaller need for all the pneumatic-piping wrapping around
Aircraft value matrix (most desirable aircraft)
the aircraft. New aircraft also have more accommodative
High features, for instance, lower cabin altitude which increases
737-300
MD-80 overall passenger cabin comfort– something that carriers
767-300ER
Market Value Depreciation
CRJ200
747-400 like to have as part of their service offering. All these new
A380-800 technologies help reduce operating costs and maintenance
effort while potentially increasing loads – which make the
777-200LR Dreamliner an attractive asset to operate for any carrier.
A320-200 Ideal quadrant
A330-300 for lessors and
ba nks
737-800c
717-200
E190 A330-200
777-300ER
Low Book Value Depreciation High
Source: Investec, Ascend Advisory, DBS Bank

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Industry Focus
Aircraft Leasing
(3) Economic drivers  Economic cycle. The economic cycle also play a role in
determining aircraft value namely on 1) demand – aircraft
 Fuel prices. The cost of fuel often makes up between 30% values tend to be firmer when demand for air travel and
(for full service carriers) to 50% (for LCCs) of an airline’s thus aircraft is high, and 2) liquidity – aircraft asset values
operating cost. The fuel efficiency of an aircraft therefore tend to be stronger when there is ample financing to fund
has a huge influence on the profitability of its operator. A aircraft acquisitions in the primary and secondary markets.
low fuel price environment tends to help support the value
of the older aircraft types while the reverse holds true when
fuel prices are high. It has also been argued that high fuel
prices would help the value of new, fuel-efficient aircraft
and that low fuel prices would diminish the attractiveness
and thus value of the newer aircraft types.
Aviation (Economic) Cycle
Cycle peak
 Strong global economy

Peak  Airlines profitable Cycle weakening
 Lease rates above base level
 Excess liquidity  Slowing global economy
 Active asset trading market  Airline profits decline
 Lease rates at base level
 Tightening liquidity
 Asset trading slow
Cycle recovery
Industry cycle
 Economies improving
 Airlines still loss-making but
restructuring and reducing cost
Cycle Trough  Lease rates recovery
 Slow return to market for banks
 Economic slowdown
 Airline industry heavily loss-
making
 Lease rates fall below base
 No liquidity
Trough Time: 8-10 years
Source: Avolon, DBS Bank

Page 40
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Industry Focus
Aircraft Leasing
Stock Profiles

Page 41
Page 41
China / Hong Kong Company Guide
BOC Aviation Ltd
Version 2 | Bloomberg: 2588 HK Equity | Reuters: 2588.HK
Refer to important disclosures at the end of this report
DBS Group Research . Equity 30 August 2016
BUY Firm Earnings Growth Trajectory

Last Traded Price: HK$38.10 (HSI : 22,821) Recommend BUY on BOC Aviation with a TP of HK$48.4. We
Price Target 12-mth: HK$48.40 (27% upside) like BOC Aviation (BOCA) for 1) its size and scale (top 5 aircraft
Potential Catalyst: Earnings delivery and accretive aircraft acquisitions lessor by fleet size, including order book, globally), 2) attractive
Where we differ: In line with consensus portfolio characteristics (well-diversified customer base, average
fleet age of just 3.2 years with average remaining lease of 7.3
Analyst years), 3) firm earnings outlook (12.5% EPS CAGR over 2015-
Paul YONG CFA +65 6682 3712 paulyong@dbs.com
2018F) backed by a large order book of 232 aircraft (at end-
What’s New 1Q16) to be delivered over the next few years. At 8.1x FY16F PE,
 Net profit rose 24% y-o-y to US$212m, ahead of declining to 7.1x FY17F PE, and trading at just over 1x FY16F
P/BV with 13.8% ROE, which is set to improve as the group
expectations, on higher average lease rate factor increases its leverage post-IPO, current valuations are attractive.
 Well positioned to grow for many years with firm
Outstanding proxy for burgeoning air travel growth. BOCA
delivery order book and strong balance shee
offers investors a firm alternative to airlines to the continued
 Interim dividend of US 6.1cts growth of air travel globally and in particular Asia, as the
region’s largest player. BOCA’s earnings and cash flows are
 Maintain BUY and TP of HK$48.40 highly stable and predictable, and the group also possesses
strong competitive advantages such as low cost of funding,
Price Relative strong track record (22 years of continuous profit), and an
experienced management team.
Continual aircraft acquisitions to drive 19% profit CAGR. We

project BOCA’s net profit to grow 15% y-o-y from US$343m
to US$395m in 2016F, 22% to US$482m in 2017F and 19%
Forecasts and Valuation to US$576m in 2018F. Lease revenue is projected to grow at
FY Dec (US$ m) 2015A 2016F 2017F 2018F
Turnover 1,091 1,172 1,452 1,789
19.2% CAGR to US$1.6bn by end-2018F as the net book
EBITDA 971 1,088 1,351 1,666 value of aircraft grows from US$9.5bn as at end-2015 to
Pre-tax Profit 402 462 564 673 US$17.1bn at end-2018F.
Net Profit 344 395 482 576
Net Pft (Pre Ex) 343 395 482 576
Net Profit Gth (Pre-ex) Valuation:
11.1 15.0 22.1 19.4 Target price of HK$48.4 based on 1.32x FY16 P/BV. Taking
(%)
EPS (US$) 0.58 0.61 0.69 0.83 into account the quality of its aircraft portfolio against its peers,
EPS (HK$) 4.52 4.71 5.39 6.43 we believe that BOCA should have an implied cost of equity of
EPS Gth (%) 10.9 4.2 14.5 19.4 10.5% and hence be valued based on 1.32x P/BV against its
Diluted EPS (HK$) 4.51 4.71 5.39 6.43 projected 13.8% ROE. We see BOCA’s share price re-rating as
DPS (HK$) 0.00 1.32 1.62 1.93 the group consistently delivers firm earnings growth. The stock
BV Per Share (HK$) 32.07 36.47 40.24 44.74
also offers a decent prospective dividend yield of 3.5%.
PE (X) 8.4 8.1 7.1 5.9
P/Cash Flow (X) 3.1 3.0 3.0 2.6
P/Free CF (X) nm nm nm nm Key Risks to Our View:
EV/EBITDA (X) 11.1 11.2 10.9 10.1 Key risks, in our view, include a) intense competition for
Net Div Yield (%) 0.0 3.5 4.2 5.1 aircraft investments, b) a spike in interest rates, and c)
P/Book Value (X) 1.2 1.0 0.9 0.9
Net Debt/Equity (X) 3.2 2.8 3.1 3.4
unfavourable demand-supply dynamics.
ROAE (%) 15.1 13.8 14.0 15.1
At A Glance
Earnings Rev (%): Nil Nil
Issued Capital (m shrs) 694
Consensus EPS (US$) 0.56 0.64
Other Broker Recs: B: 5 S: 0 H: 3 Mkt. Cap (HK$m/US$m) 26,439 / 3,409
Major Shareholders
Source of all data on this page: Company, DBSV, Thomson Reuters,
Bank of China Group (%) 70.0
HKEX
China Investment Corporation 2.7
Free Float (%) 27.3
3m Avg. Daily Val. (US$m) 10.2
ICB Industry : Industrials / Industrial Transportation

ed-TH / sa- AL
Page 42
Company Guide
BOC Aviation Ltd
WHAT’S NEW related expenses. Finance costs rose by 23.8% y-o-y to

Strong interim (1H16) earnings reported US$101m on higher USD Libor costs as well as having a
higher proportion of fixed debt. However, we do note that
BOC Aviation reported 1H16 earnings that were above
the Group’s lease rental income spread over its cost of debt
expectations, with net profit growing 23.8% y-o-y to
has actually increased y-o-y. As such, pre-tax earnings rose
US$212.2m, against our full-year net profit growth forecast
20.3% y-o-y to US$239.5m.
of 15% y-o-y, as total revenue rose by 8.2% y-o-y to
US$579.2m. BOCA declares an interim dividend of US 6.1cts, representing
c. 20% payout.
Lease rental income rose by 5.7% y-o-y despite a 0.7% y-o-y
decrease in plant and equipment and assets held for sale to Looking ahead, BOCA is well positioned to continue its firm
US$11.86bn. This was because BOC Aviation enjoyed a growth trajectory as it has placed 100% of the aircraft to be
higher average lease rate factor due to a y-o-y increase in delivered the rest of 2016 (35 aircraft in 2H16) and 67% of
USD LIBOR for the Group’s floating rate leases and more new those to be delivered in 2017 (54 aircraft in total in 2017).
leases contracted at higher fixed rate rentals. Interest and fee Furthermore, with its balance sheet boosted by IPO proceeds,
income rose by 62.4% y-o-y to US$25.5m due to an increase BOCA is looking to make more aircraft acquisitions to further
in fees for advancing aircraft progress payments and higher bolster its growth. BOCA’s net gearing stood at c. 2.9x at the
managed aircraft fees following the sale of a portfolio of 24 end of 1H16 and we would look for the Group to
aircraft in October 2015 for which BOCA continues to progressively gear up over the next two years towards its
provide management services. BOCA also saw higher trading long-term target of 3.5–4x to enhance its profitability and
gains on sale of aircraft (+35.3% y-o-y to US$37.2m). ROE.
Meanwhile, operating costs declined 6.2% y-o-y led by lower Maintain BUY, TP HK$48.40
depreciation charges as older aircraft incurring accelerated
depreciation have all been disposed while there was also no
aircraft impairment charges compared to a year ago
(US$13.6m). 1H16 costs also included c. US$3m in IPO-
Interim Income Statement (US$m)

% Chg
FYE Dec US$m 1H15 2H15 1H16 y-o-y
Lease rental Income 487.9 487.6 515.9 5.7%

Interest and fee income 15.7 24.1 25.5 62.4%
Other income:
- Net gain on sale of aircraft 27.5 42.6 37.2 35.3%
- Other income 3.9 1.3 0.5 -86.9%
Total revenue and other income 535.1 555.7 579.2 8.2%
Depreciation of plant and equipment 193.5 188.5 186.3 -3.7%
Finance expenses 81.9 86.8 101.4 23.8%
Staff costs 28.2 30.5 31.9 13.1%
Other operating costs and expenses 18.7 17.2 20.1 7.3%
Impairment of aircraft 13.6 30.3 0.0 -100.0%
Total costs and expenses 335.9 353.4 339.6 1.1%
Profit before income tax 199.1 202.3 239.5 20.3%
Income tax expenses (27.7) (30.5) (27.3) -1.2%
Profit for the period 171.5 171.8 212.2 23.8%
EBITDA 474.5 477.6 527.2 11.1%

Pretax margin 37.2% 36.4% 41.4%
Tax rate 13.9% 15.1% 11.4%
Source of all data: Company, DBS Vickers estimates
Page 43
Company Guide
BOC Aviation Ltd
CRITICAL DATA POINTS TO WATCH Net book value of aircraft (US$ m)
Earnings Drivers:
Growth in lease rental income to be mainly driven by
expanding aircraft portfolio. With a significant number of
deliveries of aircraft from its firm order book, which should be
further bolstered by purchase and leaseback transactions, we
project BOCA’s aircraft portfolio to grow from a net book
value of US$9.5bn as at end-2015 to US$11.4bn in 2016F,
US$14.3bn in 2017F, and US$17.1bn by end-2018F.
IPO net proceeds of US$547m to fund aircraft acquisitions, Lease rate factor (%)
including pre-delivery payments and purchase and lease-
backs. BOCA successfully concluded its public listing in June
to raise net proceeds of US$547m, and we have also
assumed that BOCA will continue to fund aircraft acquisitions
using a debt-to-equity ratio of 3.5-4 :1 in the long run.
We also project that the lease rate factor will increase

(assuming a 50-bp rate hike per annum from mid-2016
through to mid-2018, and this will be adjusted on 60% of
leases that are on floating rates) from 9.92% in 2015 to
10.05% in 2016F, 10.3% in 2017F and 10.55% in 2018F.
Sale of aircraft at net book value (US$ m)
Coupled with the expected growth in BOCA’s aircraft
portfolio, we project the company's lease rental income to
grow by 7.4% y-o-y to US$1,047m in 2016F, 26.1% y-o-y to
US$1,321m in 2017F, and 25.2% y-o-y to US$1,654m in
2018F.
Stable gains on aircraft disposal assumed. We have assumed

that BOCA will dispose c. US$1.5bn net book value worth of
aircraft between 2016F and 2018F, with a margin on net
book value of 5%. This translates to gains on sale of aircraft
of c. US$75m per annum between 2016F and 2018F.
Trading gain margin (%)
Stable depreciation costs and operating leverage... As a

percentage of total revenue, we project depreciation costs to
be steady at around 33.2-35% of total revenue (our
assumption for depreciation is c. 3.4% of average gross book
value of aircraft). Meanwhile, as percentage of total revenue,
we project SG&A expenses, which include staff costs,
travelling and marketing expenses, as well as other operating
expenses, to decline marginally over time, from 7.1% of total
revenue in 2016F down to 7% in 2017F and 6.9% in 2018F.
…offset by higher finance expenses. As we expect LIBOR to Cost of Debt (%)

move up (we have assumed a 50-bp increase per annum
starting from mid-2016 to mid-2018), finance expenses as a
percentage of revenue is projected to increase from 17.1% in
2015 to 18.4% in 2016F, 20.1% in 2017F and 22.2% in
2018F. We have assumed an average cost of debt of 2.1% in
2016F, 2.45% in 2017F and 2.8% in 2018F.
Source: Company, DBS Vickers
Page 44
Company Guide
BOC Aviation Ltd
Leverage & Asset Turnover (x)

Balance Sheet:
96-97% of total assets between 2016F-2018F are in aircraft and
aircraft progress payments, of which 82-87% are in aircraft
assets. The bulk of the remaining 3-4% of assets are largely cash,
including restricted cash. Debt ratio should increase through to
2018F following an assumed equity injection in 2016F. While
we project BOCA’s debt-to-equity ratio to fall to 2.9x by end-
2016F after raising net IPO proceeds of US$547m, it is expected
to increase to c. 3.5x by end-2018F as the group continues to
buy aircraft and fund them using a targeted debt-to-equity ratio
Capital Expenditure
of 3.5-4 : 1
Share Price Drivers:

Recommend BUY with TP of HK$48.4. Taking into account P/BV
vs ROE for BOCA’s peers in aircraft leasing as well as other Asian
lessors, plus BOCA’s own qualities versus its aircraft leasing peers,
we believe that BOCA’s cost of equity should be 10.5%,
translating into a target of 1.32x P/BV, against a projected ROE
of 13.8% for 2016F. Hence, we derive a TP of HK$48.4 for
BOCA and this translates to FYE Dec’16 PE of 10.2x, against ROE
projected EPS CAGR of 12.5% over 2015-2018F. We believe
BOCA's share price will re-rate as the company delivers on
consistent earnings growth, and executes on its growth plans
both organically (aircraft deliveries) and inorganically (purchase
and lease-backs). Dividend payout of 30% assumed. We have
assumed that BOCA will pay dividends equal to 30% of its
profits going forward, compared to 27% of earnings paid out in
total between 2013 and 2015, and 41% and 45% payouts for
2013 and 2014 respectively.
Forward PE Band
Key Risks:
Key Risks. 1) Highly competitive environment for aircraft
investments could impact BOCA’s ability to acquire sufficient
aircraft or at a value adequate to reach its targeted returns; 2) A
rapidly increasing interest rate environment would lower BOCA’s
earnings.
Company Background:
BOC Aviation (BOCA) is the largest Asia-headquartered aircraft PB Band
operating lessor, as measured by the value of owned aircraft.
Founded in 1993, BOCA today has total assets of US$12.5bn,
and has recorded 22 consecutive years of profit with US$2.1bn
in cumulative profits. The company is also among the world’s
top 5 operating lessors by fleet size (including firm order
backlog).
Page 45
Company Guide
BOC Aviation Ltd
Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
Net book value of
9,923.4 9,475.7 11,367.2 14,273.8 17,079.7
aircraft (US$ m)
Lease rate factor (%) 9.8 9.9 10.1 10.3 10.6
Sale of aircraft at net
1,319.5 1,753.9 1,500.0 1,500.0 1,500.0
book value (US$ m)
Trading gain margin (%) 2.3 4.0 5.0 5.0 5.0
Cost of Debt (%) 1.9 2.0 2.1 2.5 2.8
Segmental Breakdown (US$ m)

FY Dec 2014A 2015A 2016F 2017F 2018F
Revenues (US$ m)
Lease Rental Income 937 975 1,047 1,321 1,654
Interest and Fee Income 12 40 43 48 50
Net gain on sale of
30 70 75 75 75
aircraft
Others 10 5 6 8 10
Total 988 1,091 1,172 1,452 1,789
Income Statement (US$ m)

FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 988 1,091 1,172 1,452 1,789
Cost of Goods Sold (381) (382) (411) (496) (596)
Gross Profit 607 708 761 956 1,193
Other Opng (Exp)/Inc (88) (120) (83) (101) (123)
Operating Profit 519 588 678 855 1,070
Other Non Opg (Exp)/Inc 0 0 0 0 0
Associates & JV Inc 0 0 0 0 0
Net Interest (Exp)/Inc (165) (187) (216) (291) (396)
Dividend Income 0 0 0 0 0
Exceptional Gain/(Loss) 1 0 0 0 0
Pre-tax Profit 354 402 462 564 673
Tax (44) (58) (67) (82) (98)
Minority Interest 0 0 0 0 0
Preference Dividend 0 0 0 0 0
Net Profit 310 344 395 482 576
Net Profit before Except. 309 343 395 482 576
EBITDA 900 971 1,088 1,351 1,666
Growth
Revenue Gth (%) 7.6 10.3 7.4 23.9 23.2
EBITDA Gth (%) 12.8 7.9 12.1 24.1 23.3
Opg Profit Gth (%) 12.4 13.5 15.1 26.2 25.1
Net Profit Gth (%) 11.7 10.9 14.9 22.1 19.4
Margins & Ratio
Gross Margins (%) 61.4 65.0 64.9 65.9 66.7
Opg Profit Margin (%) 52.5 54.0 57.8 58.9 59.8
Net Profit Margin (%) 31.3 31.5 33.7 33.2 32.2
ROAE (%) 15.4 15.1 13.8 14.0 15.1
ROA (%) 2.9 2.9 2.9 3.0 3.1
ROCE (%) 4.3 4.3 4.4 4.7 4.9
Div Payout Ratio (%) 44.9 0.0 30.0 30.0 30.0
Net Interest Cover (x) 3.1 3.1 3.1 2.9 2.7
Page 46
Company Guide
BOC Aviation Ltd
Interim Income Statement (US$ m)

FY Dec 1H2015 2H2015 1H2016
Revenue 535 556 579

Cost of Goods Sold (193) (188) (186)
Gross Profit 342 367 393
Other Oper. (Exp)/Inc (61) (78) (52)
Operating Profit 281 289 341
Other Non Opg (Exp)/Inc 0 0 0
Associates & JV Inc N/A N/A N/A
Net Interest (Exp)/Inc (82) (87) (101)
Exceptional Gain/(Loss) 0 0 0
Pre-tax Profit 199 202 240
Tax (28) (30) (27)
Minority Interest N/A N/A N/A
Net Profit 171 172 212
Net profit bef Except. 171 172 212
Growth
Revenue Gth (%) N/A N/A 8.2
Opg Profit Gth (%) N/A N/A 21.3
Net Profit Gth (%) N/A N/A 23.8
Margins
Gross Margins (%) 63.8 66.1 67.8
Opg Profit Margins (%) 52.5 52.0 58.9
Net Profit Margins (%) 32.0 30.9 36.6
Balance Sheet (US$ m)

FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 11,015 11,717 13,909 16,816 19,622

Invts in Associates & JVs 0 0 0 0 0
Other LT Assets 2 3 3 3 3
Cash & ST Invts 367 729 496 477 538
Inventory 0 0 0 0 0
Debtors 16 23 23 23 23
Other Current Assets 2 2 2 2 2
Total Assets 11,403 12,474 14,432 17,321 20,188
ST Debt 889 963 963 963 963

Creditors 77 115 123 150 183
Other Current Liab 78 137 100 100 100
LT Debt 7,272 7,649 8,549 10,849 13,049
Other LT Liabilities 990 1,170 1,434 1,658 1,889
Shareholder’s Equity 2,096 2,440 3,263 3,601 4,004
Minority Interests 0 0 0 0 0
Total Cap. & Liab. 11,403 12,474 14,432 17,321 20,188
Non-Cash Wkg. Capital (137) (227) (199) (226) (259)

Net Cash/(Debt) (7,794) (7,883) (9,016) (11,335) (13,473)
Debtors Turn (avg days) 5.4 6.6 7.2 5.8 4.7
Creditors Turn (avg days) n.m. n.m. n.m. n.m. n.m.
Inventory Turn (avg days) N/A N/A N/A N/A N/A
Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1
Current Ratio (x) 0.4 0.6 0.4 0.4 0.5
Quick Ratio (x) 0.4 0.6 0.4 0.4 0.5
Net Debt/Equity (X) 3.7 3.2 2.8 3.1 3.4
Net Debt/Equity ex MI (X) 3.7 3.2 2.8 3.1 3.4
Capex to Debt (%) 22.4 15.3 26.6 28.2 23.7
Z-Score (X) NA NA NA NA NA
Page 47
Company Guide
BOC Aviation Ltd
Cash Flow Statement (US$ m)

FY Dec 2014A 2015A 2016F 2017F 2018F
Pre-Tax Profit 353 401 462 564 673

Dep. & Amort. 396 400 431 520 625
Tax Paid 0 0 (1) (1) (1)
Assoc. & JV Inc/(loss) 0 0 0 0 0
(Pft)/ Loss on disposal of FAs 0 0 0 0 0
Chg in Wkg.Cap. 55 161 194 27 33
Other Operating CF (6) (42) (17) 17 3
Net Operating CF 797 921 1,069 1,128 1,333
Capital Exp.(net) (1,827) (1,318) (2,527) (3,327) (3,327)
Other Invts.(net) 0 0 0 0 0
Invts in Assoc. & JV 0 0 0 0 0
Div from Assoc & JV 0 0 0 0 0
Other Investing CF 0 0 0 0 0
Net Investing CF (1,827) (1,318) (2,527) (3,327) (3,327)
Div Paid (139) 0 0 (118) (145)
Chg in Gross Debt 998 536 900 2,300 2,200
Capital Issues 0 0 547 0 0
Other Financing CF (98) 0 (30) (30) (30)
Net Financing CF 761 536 1,417 2,152 2,025
Currency Adjustments 0 0 0 0 0
Chg in Cash (269) 139 (41) (48) 31
Opg CFPS (US$) 1.26 1.29 1.35 1.59 1.87
Free CFPS (US$) (1.75) (0.67) (2.24) (3.17) (2.87)
Target Price & Ratings History
S.No. Dat e Closing 12- mt h Rat ing

HK$
Pric e T arget
43.0 1
2 Pric e
42.0 1: 7-J ul-16 HK$39.95 HK$48.4 Buy
2: 27-J ul-16 HK$37.75 HK$48.40 Buy
41.0
40.0
39.0
38.0
37.0
36.0
Aug-16
Jun-16
Jul-16
Source: DBS Vickers
Analyst: Paul YONG CFA
Page 48
China / Hong Kong Company Focus
China Aircraft Leasing Group

Bloomberg: 1848 HK Equity | Reuters: 1848.HK Refer to important disclosures at the end of this report
DBS Group Research . Equity 10 Feb 2017
BUY (Initiating coverage) Punching above its weight

Last Traded Price ( 9 Feb 2017):HK$9.23 (HSI : 23,525) • China Aircraft Leasing Group (CALC) is a leading
Price Target 12-mth: HK$11.60 (26% upside) independent aircraft lessor in China, with an order book
to grow its fleet from 81 to 173 aircraft by 2022
Potential Catalyst: Better than expected performance from a) sale of
finance lease receivables and/or b) aircraft disassembly business • Firm earnings growth propelled by growing lease
Where we differ: We have more conservative earnings forecasts income and disposal of finance lease receivables
than consensus on less aggressive realisation gain assumptions
• Aircraft disassembly business could provide further
Analyst upside to earnings and share price
Paul YONG CFA +65 6682 3712
paulyong@dbs.com • Initiating coverage with BUY and TP of HK$11.60
Leading independent aircraft lessor in China. Established in 2006,
Price Relative CALC has grown its fleet to 81 aircraft as at end of 2016, leased
HK$ Relative Index to 16 airline customers in Asia and Europe. With a firm order
237 book for 92 aircraft from Airbus and potential for more from pop-
ups and purchase & lease-backs, CALC is well poised to grow its
14.5 217
197
12.5
177
fleet to at least 173 by 2022.
10.5
157
8.5 137 Growing lease income supplemented by sale of finance lease

6.5
117 receivables. Underpinned by its growing fleet, CALC’s lease
97
income is projected to grow steadily over the next few years,
4.5 77
Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 further supplemented by gains from the sale of its finance lease
China Aircraft Leasing Group (LHS) Relative HSI (RHS)
receivables. CALC also receives strong support from the Chinese
government, as evidenced by the growing subsidies it receives.
Forecasts and Valuation
FY Dec (HK$ m) 2015A 2016F 2017F 2018F Foray into aircraft disassembly business could set CALC apart
Turnover 1,549 2,239 2,584 2,851 from the competition. CALC has a 49% stake in an aircraft
EBITDA 1,325 1,936 2,256 2,498
disassembly business based in Harbin that is slated to commence
Pre-tax Profit 480 845 943 1,036
Net Profit 380 659 736 808 operations in 2H17 and targets to disassemble up to 20 aircraft
EPS (HK$) 0.63 0.96 1.06 1.16 per annum from 2018. If successfully executed, this could provide
EPS Gth (%) 21.4 52.6 10.8 9.8 a further lift to earnings and share price.
Diluted EPS (HK$) 0.52 0.91 1.02 1.12
DPS (HK$) 0.22 0.34 0.37 0.41 Valuation
BV Per Share (HK$) 3.61 4.49 5.20 5.95 We value CALC based on a blended valuation of 10x FY18F PE
PE (X) 14.7 9.6 8.7 7.9 and 2x FY18F P/B to derive a 12-month target price of HK$11.60.
P/Cash Flow (X) nm nm 14.5 5.4
The higher than peer average target P/B multiple of 2x reflects the
P/Free CF (X) nm nm nm nm
EV/EBITDA (X) 15.5 12.2 10.9 10.3 Group’s industry-leading ROE of over 19%.
Net Div Yield (%) 2.4 3.6 4.0 4.4
Key Risks to Our View:
P/Book Value (X) 2.6 2.1 1.8 1.6
Net Debt/Equity (X) 6.8 5.6 5.1 4.7 CALC derives a substantial portion of its revenues from
ROAE (%) 19.3 25.0 22.0 20.9 government subsidies and gains from sale of finance lease
receivables and should these fall short, it would significantly
Earnings Rev (%): New New New impact the Group’s earnings.
Consensus EPS (HK$) 0.97 1.14 1.27
Other Broker Recs: B: 7 S: 0 H: 1 At A Glance
Issued Capital (m shrs) 616
ICB Industry: Industrials
Mkt. Cap (HK$m/US$m) 5,685 / 733
ICB Sector: Industrial Transportation
Principal Business: CALC is a leading independent aircraft leasing Major Shareholders
company in China China Everbright Ltd (%) 32.3
Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX Friedmann Pacific A.M. (%) 27.3
Free Float (%) 40.4
3m Avg. Daily Val. (US$m) 0.8
ed-JS / sa- AH
Page 49
Company Focus
INVESTMENT THESIS
Profile Rationale
Established in 2006, China Aircraft Leasing Group (CALC) is a Firmed earnings growth supported by a young and growing
leading independent aircraft lessor in China, and also fleet. Underpinned by a growth in owned fleet from 63
provides customers with aircraft full-life solutions - covering aircraft at end-2015 to 125 by end FY18F, as well as higher
fleet planning consultation, structured financing, fleet gains from disposal of finance lease receivables, we expect
replacement package deal and third party aircraft resale. The
net profit to grow substantially from HK$380m in FY15 to
group has also made a recent foray into the aircraft
HK$808m by FY18F.
disassembly business, which is slated for commencement in
2H17.
Foray into aircraft disassembly business could set CALC apart

from competition. CALC has a 49% stake in an aircraft
disassembly business based in Harbin that is slated for
commencement in 2H17, and targets to disassemble up to
20 aircraft p.a. in 2018. While we have yet to factor
contributions from this business into our forecasts, if
successfully executed, this could provide further earnings and
share price upside.
Valuation Risks
12-month TP of HK$11.60. We value CALC based on a blend Reliance on government subsidies and gains from sale of
of 10x FY18F PE and 2x FY18F PB to derive a 12-month finance lease receivables. CALC derives a substantial portion
of its revenues from government subsidies and gains from
target price of HK$11.60. The higher than peer average
sale of finance lease receivables and should these fall short, it
target multiple of 2x reflects the Group's industry-leading would significantly impact the group's earnings.
ROE of over 19%.
Source: DBS Vickers
Page 2
Page 50
Company Focus
BUSINESS MODEL Current portfolio of 81 aircraft with an average age of c. 4

years. CALC’s aircraft portfolio stands at 81 at the end of 2016,
Leading independent aircraft lessor in China. Established in
with an average age of c. 4 years. This is made up of 72
2006 and having completed its first purchase and leaseback
A319/320/321 series of aircraft and four A330 series of aircraft,
transaction with China Southern Airlines in 2007, China
and five B737 NGs. The portfolio has an average remaining
Aircraft Leasing Group (CALC) has today grown to become a
lease of over nine years. Furthermore, CALC has 92 A320s on
leading independent aircraft lessor in China. As at end-2016,
order with Airbus.
CALC has a fleet of 81 aircraft with 92 on order with Airbus,
with total assets of over US$4bn. CALC was listed on the Fleet breakdown by aircraft type
Hong Kong Exchange in July 2014, becoming the first aircraft
lessor to be listed in Asia.
2015 Revenue Breakdown: HK$1,549m 5

4
Government Others
subsidy 1%
16%
Gain from
disposal of
finance lease
72
receivables
3%
Operating Financial Boeing 737 NG Airbus 330 series Airbus 319/A320/A321 series
lease lease
income Source: Company, DBS Bank estimates
income
14% 66%
80% of revenue from aircraft leasing income. The bulk of
CALC’s revenue is derived from the leasing of aircraft. In 2015,
Source: Company, DBS Bank estimates 80% of the Group’s total revenue was from aircraft leasing, of
which 82% was classified as being from financial lease income
Strong top and bottom line growth. Fueled by a rapidly and the remaining from operating lease income. Meanwhile,
growing fleet, CALC’s revenue has grown from HK$223m in 16% of the Group’s revenue in 2015 was from government
2011 to HK$1.5bn in 2015, while net profit has grown from
subsidies and 3% from gains from disposal of financial lease
HK$51m to HK$380m over the same period.
receivables.
Revenue and profit track record (HK$m) Operating lease vs Finance lease. While a large proportion of
the Group’s leases have been classified as finance leases, CALC
1,800 regards itself as an operating lessor as it keeps the title of the
1,549
1,600 aircraft in its hands at the end of the lease and generally its
1,400 lessees have no option to acquire the leased aircraft at a
1,145 nominal value. However, because these leases have a longer
1,200
1,000 rental period (e.g. 12 years), hence they have been classified as
800 687 finance leases.
600 448 Government subsidies. CALC receives grants and subsidies
380
400 223 303 mainly from the Management Committee of Tianjin Dongjiang
173
200 51 95 Free Trade Port Zone. These are incentives provided by the
0 government to support the development of the aircraft leasing
2011 2012 2013 2014 2015 industry. The amount of government subsidies received by
CALC has been growing in tandem with the number of aircraft
Total Revenue Net Profit
in CALC’s portfolio that are registered in China.
Source: Company, DBS Bank estimates
Disposal of financial lease receivables. To augment its earnings
and cash flow, CALC consistently disposes of its finance lease
receivables to investors such as banks and insurance companies
Page 3
Page 51
Company Focus
for gains. This helps the Group to realise the unearned finance aircraft in the portfolio as at end 2016, 15 are leased to
income for profit and also helps to improve capital recycling for overseas airlines, which includes Air Macau, Air India, Pegasus
CALC. Airlines and Jetstar Pacific. The remainder are leased to various
Chinese carriers.
Aircraft delivery schedule. CALC is poised to take delivery of
17 A320s from Airbus in 2017, and a further 15-20 per year in
2018 and 2019, which provides the Group with a steady
pipeline for growth.
Diversified customer portfolio. CALC has a well diversified

customer base, with a bias towards Chinese carriers. Of the 81
CALC’s Customer Portfolio as at end 2016
Source: Company
Page 4
Page 52
Company Focus
2015 Operating Costs Breakdown: HK$1,068m
Others
15%
Employee
compensation
& benefits
6%
Depreciation
8%
Interest
expense
71%
Source: Company, DBS Bank estimates
Interest and depreciation make up the bulk of operating costs.

As expected of an aircraft lessor, the bulk of operating costs
for CALC consists of depreciation and interest costs, which
made up 79% of the Group’s total operating costs in 2015.
Meanwhile, employee compensation and benefits made up
6% of total operating costs, while the remaining can be
attributed to other costs such as business tax & surcharges,
professional service expenses, and overheads.
Page 5
Page 53
Company Focus
INDUSTRY OVERVIEW: Demand outlook for aircraft and operating leasing remains rosy
Sustainable increasing trend in demand for air travel. There were only three short periods of negative growth – the
Facilitated by rapid economic growth, there has been first in 1991 following the first Gulf War, then following the
increasing demand for air travel since 1990. The air travel September 11 terrorist attacks and lastly, after the global
industry has weathered various major external shocks over financial crisis of 2008-09. Global passenger traffic in 2015
the years to register 5.1% CAGR in the 25 years until 2015, was almost 3.5 times greater than that seen in 1990,
compared to 3.6% average global GDP growth rate in the exceeding global GDP growth by 2.5 times.
same period.
Global GDP and passenger traffic growth
Source: Ascend Flightglobal Fleet Forecast
Global passenger traffic is forecast to grow by 5.0% per IATA expects emerging markets to be the most dynamic
annum between 2015 to 2035. Barring such unprecedented region in terms of passenger traffic growth by 2035.
shocks, air traffic growth should remain on a long-term Breaking down into regions, traffic growth should be
steady growth trend. Going forward, rising per capita increasingly driven by emerging markets; Western Europe
income, increasing affordability and propensity to travel will and North America are considered mature markets, with
continue to propel traffic growth, especially in emerging growth expectations of only 2.9-3.5% per annum while
markets and drive the need for more aircraft. According to many markets in Asia, the Middle East, Africa and Latin
most industry experts, this trend is likely to continue for the America are forecast to grow at rates well above 4.5% per
next two decades with 5% p.a. growth for passengers, annum according to Airbus.
driven mainly by emerging markets. This implies 2.6 times
the current revenue passenger kilometres (RPKs) will be This is underpinned by increasing disposable income and
flown by 2035. Traffic growth is expected to remain around rapidly growing middle class populations. The number of
1.5 to 2.0 times the rate of underlying GDP growth, Asia’s middle class households is expected to grow by 2x to
depending on the region. 249m by end 2020 from 89m at end 2010 and may double
during 2020-2030 to 508m, underpinning air traffic growth.
In particular, China and India hold significant, long term
growth potential.
Page 6
Page 54
Company Focus
The market is also stimulated by expansion of low cost Aircraft fleet growth forecasts
carriers in short haul markets, most recently in the Asia-
Pacific region, and increasing connectivity by Gulf ‘hub 45,000
carriers’ in long haul markets between Europe, Africa, the 40,000
Americas and Asia-Pacific. Technology is a key driver of air 35,000 19,930
travel growth as new aircraft technologies generate 30,000
operational and cost efficiencies which are passed on to 25,000
passengers. 20,000
15,000 19,160 13,610
Revenue passenger kilometre (RPK) traffic by domicile 10,000
5,000
Regions % of % of 20-year 5,550
‐
2015 2035 CAGR
2015 2035
World’s World’s
RPK RPK Base fleet Replacement demand Growth demand
Asia-Pacific 30% 36% 5.7% Source: Ascend
Europe 25% 22% 3.5%
North 24% 19% 2.9% Asia Pacific will lead on delivery value, in line with faster air
America traffic growth according to Boeing. On a regional basis, the
Middle East 9% 11% 5.7% Asia-Pacific region (including China) is forecast to account
Latin 5% 5% 4.8% for 40% of deliveries by value in the 20-year period. The
America mature markets of North America and Europe will have
CIS 4% 4% 4.1% shares of 19% and 17% respectively. Middle Eastern carriers
Africa 3% 3% 4.5% may only account for 8% of aircraft deliveries but their 13%
Global Average 4.5% share of value reflects the many large twin-aisle aircraft the
Source: Airbus, DBS Gulf hub carriers have ordered.
Fleet growth forecast by region
Nearly 40,000 new aircraft will be needed over the next 20
Russia & CIS,
years. Boeing expects approximately 39,620 new aircraft (or $68bn, 3% Africa, $73bn, 3%
close to US$3 trillion worth of new aircraft deliveries) to be North America,
AP (excl. China),
$638bn, 24%
delivered into 2035. This is also largely in line with latest $443bn, 17%
fleet forecasts provided by Airbus. Over 39,620 aircraft by

2035 translates into annual increase of 3.6%, less than the
forecast rate of traffic growth (5%) with the balance
(difference between 5.0% and 3.6%) made up from
Middle East,
improved asset and labour productivity, increased seat $359bn, 14%
China, $427bn,
densities, deployment of larger aircraft, and other 16%
operational efficiencies.
Latin America,
$176bn, 7% Europe, $414bn,
Meanwhile, aviation consultant Ascend estimates that 16%
33,540 new aircraft will be delivered over the next twenty Source: Ascend
years, approximately 19,930 of which are likely required to
fulfil new demand generated by passenger traffic growth,
Replacement needs and tighter regulation to drive demand.
whilst almost another 13,610 new aircraft are forecast
Travel demand aside, replacement needs and emergence of
replace aircraft presently in service that will be retired from
new regulations may also drive demand for newer aircraft.
passenger service in the next ten years due to fuel efficiency,
As compared to older models, newer aircraft offer the
retirement and freight conversion. Approximately 5,550 of
advantages of: (i) Lower operating costs, especially improved
the fleet currently in service today are expected to remain in
fuel burn (the best way to hedge fuel cost exposure) and
service in 2035.
lower maintenance costs; (ii) Improved payload and range
capability (important for opening new markets) and
despatch reliability; (iii) Advanced cockpits and cabins
(weight savings either reduce costs or offer greater revenue
Page 7
Page 55
Company Focus
potential from increased seat density. Often, older aircraft Aircraft financing needs to grow at 5.9% CAGR into 2020
are uneconomic to refurbish); and (iv) Availability (the option 200
172
to upgrade an older aircraft is driven by available supply of 180
161
160
new aircraft). 142
140 127 130
122
120
The airline industry is also subject to regulations, particularly
100
on the safety and operational axes. The latter may impact 80
fleet strategy and aircraft values. Another form of regulation 60
which can potentially impact aircraft liquidity is aircraft 40
importation age restrictions, which are used in certain 20
countries to prevent the import of aircraft older than a 0

2015 2016F 2017F 2018F 2019F 2020F
certain age (typically 10, 15 or 20 years). According to
Ascend, such regulations can be found in approximately 44 Source: Boeing, DBS
countries today, but only half of these are currently in effect.
Major aircraft funders include export credit agencies (ECA),
Airlines have typically used a variety of avenues to finance commercial banks, operating lessors, public debt/capital
new aircraft deliveries worth more than US$100bn annually. markets, private equity / hedge funds, cash / equity and
Demand for new commercial airliners is presently strong and manufacturer finance (both airframe and engine OEMs).
annual financing for new deliveries now exceeds US$100bn, Recently, many new investors have recognised the
excluding spare parts and services which airlines buy direct investment potential offered by aircraft and a number of
from aircraft manufacturers. Over 2016 to 2020, Ascend new players have entered the field.
estimates the value of deliveries of new 100+ seater
passenger jets and their freighter versions will be around
US$662bn in total. According to Boeing, annual aircraft
financing required for new deliveries alone willl likely reach
US$172bn by 2020, which represents CAGR of 5.9%
between 2015 and 2020.
Page 8
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Company Focus
Aircraft Manufacturer Supply Airbus and Boeing duopoly. The single-aisle and twin-aisle
aircraft manufacturing landscape has gradually evolved
Aircraft deliveries showed strong resilience even during GFC. into a duopoly between the European Airbus Group and US-
Commercial jet airline deliveries have been growing based Boeing. Several smaller players (Fokker, British
constantly over the past 10 years despite small hiccups in Aerospace, Lockheed) have exited the market over the years,
2008-2010 during the GFC. However, during the last and Boeing took over long-time rival McDonnell-Douglas
economic downturn (i.e. 2008 - 2009), there was not a (MDC) in 1997. Airbus and Boeing today account for 98%
significant decline in production, as Airbus and Boeing, the of deliveries in the 100+ seat passenger jet and freighter
two key OEMs today, made concerted efforts to manage variant market. Embraer and Bombardier have a small share
their production rates more efficiently than in previous cycles. of the 100-seat sector. COMAC of China and Irkut in Russia
In addition, during this period, the OEMs benefited from the are developing new 150-seater single-aisle programmes, the
rise of new markets and strong oil economies that absorbed C919 and MC-21 respectively, for the end of the decade.
deliveries which were deferred by airlines in many developed The timing of these aircraft is indicative of the long-lead time
markets. Production is expected to increase over the next inherent in new aircraft development programmes.
three years, in line with estimates for increasing demand for
new aircraft. This is driven particularly through increasing the Airbus and Boeing duopoly in OEM
output of single-aisle aircraft at both Airbus and Boeing.
Narrow body aircraft will continue to be the workhorse of

the industry. Around 21,300 of the forecast deliveries are
predicted to be single-aisle aircraft, 6,900 will be twin-aisle
aircraft and 4,000 will be regional jets. The Middle East and
Asia-Pacific will require relatively more twin-aisle aircraft,
with the former rapidly developing as a key hub region for
long-haul services between the west and east, and the latter
seeing significant growth in long-haul services and that twin-
aisle aircraft are required for denser intra-Asia-Pacific routes,
which are already operated using twin-aisle aircraft.
Commercial jet airline delivery trend
Source: Flightglobal Fleet Analyzer
Source: Flightglobal Fleet Analyzer
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Company Focus
Aircraft Lease Market Dynamics and Peers (34%) with a higher share in China (41%) and in Europe
comparison (32%), and a lower share in North America (16%). The table
below indicates that the core aircraft operating lease
Asia Pacific and Europe are core markets for aircraft leasing. markets are in Asia-Pacific and Europe. The tax regime in
As at 31 January 2016, the commercial aviation industry North America encourages profitable airlines to own aircraft
comprised 780 airlines in about 160 countries operating on their balance sheets. An aircraft operating lessor will
almost 20,000 passenger jets of 100+ seats and their achieve the greatest efficiencies by focusing on larger airlines,
freighter versions. The global airline fleet is currently where multiple aircraft deals are possible.
dominated by the Asia-Pacific region with a 32% market
share, of which China alone has 13%. North America
follows with 26% and Europe with 25%. The fleet of
aircraft on operating lease has a similar share in Asia-Pacific
Airline fleet and operating lease fleet by region (Jan 2016)
As ia P acific North L atin Middle

Europe Africa
(incl. China) America America E as t
Airline operators (100+ seat aircraft) 234 235 68 89 54 100
Operators with >20 aircraft 58 52 18 16 15 7
Dedicated cargo operators 31 24 33 7 25 9
In service fleet 6,308 4,874 5,177 1,433 1,194 646
Aircraft on operating lease 2,674 2,478 1,346 756 422 196
Average fleet age (yrs) 7.5 11 14.2 10.1 9.5 13.4
Average age of operating lease fleet 6.5 10.3 12.5 9.3 8 11.6
5yr delivery total 2,934 1,310 943 567 489 166
20 yr forecast delivery total 13,908 6,490 6,484 3,002 2,757 903
2015 Operating revenues (US$bn) 202 198 204 31 59 18
2015 EBIT margin 6.60% 5.30% 14.30% 1.30% 2.90% -1.70%
2015 Net margin 2.90% 3.50% 9.50% -1.00% 2.40% -1.70%
Source: Ascend, DBS Vickers
Lessors retain some advantage in fund-raising owing to their some airlines over alternative forms of finance, as well as
diversified portfolios and consistent financial performance providing operational advantages. Consequently, the fleet of
through the cycle, which renders them more attractive aircraft owned by operating lessors is expected to grow in
options for sources of finance that still remain available. line with the global expanding aircraft fleet.
Operating lessors are expected to continue to grow their Since the mid-1960s, the percentage of the global fleet of
portfolio through the next few years but they must still commercial passenger and cargo jets owned or managed by
access debt to finance new deliveries, and the retreat of operating lessors has grown from zero to more than 40% of
commercial banks from the sector will potentially impact the total fleet of 100+ seat passenger jets and their freighter
their ability to grow. Lessors will thus be expected to seek versions at end 2015. In early 2016, there were around
new sources of capital to support their growth, which 7,900 aircraft in service which were owned by aircraft
represents investment opportunities for new capital funds. operating lessors, representing 11% CAGR over the past 30
years or double the rate of growth of the commercial jet
Operating lease market penetration should continue to airliner fleet in service. This trend should continue in our
increase. The aircraft fleet is expected to continue its view given the benefits of operating lease such as financial
consistent long-term growth trend, with the global fleet and fleet flexibility. Key driver of this faster growth is that
predicted to exceed 30,000 aircraft by 2024. As explained lessors can access capital much more easily than airlines, as
earlier, operating leases offer advantages of ownership for we have explained earlier.
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Company Focus
Operating lease as percentage of aircraft fleet
Source: Ascend
Europe and Asia-Pacific are the leading regions of customer focus of many of the new Chinese based lessors, while they
placement for aircraft operating lessors and the top ten have less exposure to the overseas market.
Asian lessors have significant placements in each of these
regions. China is the most significant market for the Asian
top 10 lessors, unsurprising given the initial Chinese lessee-
Operating Lessor Fleet & Backlog by Airline Lessee Region
Source: Flightglobal Fleets Analyzer — as at 31 Dec 2015
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Company Focus
KEY RISK FACTORS

Delays in delivery or failure of deliveries may adversely
Exposed to the performance of the aviation industry. impact CALC. CALC’s growth depends mainly on the
CALC’s business is almost entirely dependent on the manufacturers’ ability to deliver the ordered aircraft timely.
willingness as well as the ability of airline customers to enter A failure to deliver by the manufacturer or a delay in
into new aircraft operating leases and to pay and perform delivery, commonplace for new aircraft types, could result
their obligation leases. During a downturn, CALC’s airline in lost or delayed revenues for CALC.
customers may find it difficult to honour cash flow
commitments, leading to delays in payments, and in the Interest rate impact. CALC is partially vulnerable to higher
worst case, could face bankruptcy. Geopolitical risks, war, interest rates as it has not perfectly matched or hedged its
acts of terrorism, epidemics and natural disasters could also leases with its loan. A sharp increase in interest rates could
impair the lessees’ ability to honour their lease terms. substantially impact CALC’s earnings. In the longer term,
Increasing competition, high fuel costs, worsening labour CALC could also be vulnerable to interest rate volatility if it
conditions are some other factors cannot balance fixed and floating rate debt to match its
own fixed and floating rate aircraft leases.
Supply-demand dynamics will affect lease rates and aircraft
values. The aviation industry is cyclical in nature, leading to Reliance on government subsidies. CALC derives a
periods of oversupply and undersupply in the aircraft substantial portion of its revenues from government
leasing and sales industry. The oversupply of a specific type subsidies and gains from sale of finance lease receivables
of aircraft will of course lead to depressed market values and should these fall short, it would significantly impact the
and lease rates in future. Group’s earnings.
Re-leasing terms may not be favourable. As the existing

leases expire, CALC would need to renegotiate leases with
prospective lessors and depending on the economic cycle,
re-lease terms may be lower than currently estimated. In the
event that no favourable terms can be found, the company
may have to bear off-lease time and/(or) unfavourable
financial results of operations.
Lessees may fail in maintenance obligations. Under each

lease agreement, the lessee is primarily responsible for
maintaining the aircraft and complying with all aviation
safety and airworthiness regulations. If the lessee fails to
properly maintain the aircraft, this could impact the sale
value or re-lease value of the aircraft at the expiry of current
lease.
Competition may impede CALC’s ability to grow. CALC

operates in a highly competitive market for investment
opportunities in aircraft. The business of acquisition, leasing
and sale of commercial aircraft is highly competitive, and
CALC competes with airlines, other lessors, aircraft investors
as well as other new potential market entrants for such
opportunities. Intensifying competition could impede
CALC’s growth and/or lower the returns for this business.
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Company Focus
MANAGEMENT & STRATEGY
Experienced and diversified management team. CALC is led

by a highly-experienced management team with decades of
collective experience in the global aviation and finance sectors.
Key Management Team

Name and Title Responsibilities Credentials
Mr. Chen Shuang Responsible for reviewing the Mr. Chen is an Executive Director and Deputy General
Executive Director and Group’s overall strategic planning Manager of China Everbright Holdings, a leading SOE. Also
Chairman and managing overall business an Executive Director and CEO of HK-listed China Everbright
operations Limited
Mr. Poon Ho Man Responsible for formulating and A founder of CALC, Mr. Poon has over 20 years of
reviewing the Group's overall experience in direct investment, structured finance and
strategic planning and managing aviation financing, with over 10 years of focus in aircraft
overall business operations leasing and airport investment.
Mr. Barry Mok Chung Tat Responsible for the Group's overall Has over 30 years of extensive corporate and banking
Deputy CEO and Chief strategic planning and experience and has arranged c. HK$500bn debt capital
Financial Officer implementation. Also oversees the market facilities. Previously the Chief Executive of BOCI
accounting and risk management, Capital
and other corporate functions
Ms. Winnie Liu Wanting Responsible for the Group's overall Joined CALC in 2006 and has lead the team to place over 60
Executive Director, Deputy strategic planning and new and used aircraft to over 10 airlines in the Greater China
CEO and Chief implementation, as well as region. Closed over US$2bn worth of multiple aviation
Commercial Officer managing commercial operations. financing projects and the first securitisation in China.
Mr. Pitney Tang Yu Ping Oversees all aspects of transaction- Has held senior financial positions in various companies listed
Chief Operating Officer related functions in Hong Kong, and has over 20 years of experience in
corporate development, and financial management
Mr. Jens Dunker In charge of aircraft asset trading Has over 20 years of experience in the aircraft industry with
SVP, Aircraft Trading and and global marketing a focus on aircraft purchasing and financing
Global Marketing
Mr. Duan Xiaoge Responsible for technical and asset Has over 27 years of experience in the aircraft industry,
SVP, Technical and Asset management focusing on aircraft maintenance and engineering, project
Management consultancy and planning
Mr. Christian McCormick Covers international financing Leading expert in aircraft financing solutions with 30 years of
Managing Director initiatives, with primary focus on experience in the financial services industry. Ex-CEO of
Finance capital market initiatives on the Natixis Transport Finance
international markets
Source: Company, DBS Bank
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Company Focus
Globalisation – to grow the business beyond China. As

Aiming to be a full value chain aircraft solutions provider.
CALC’s aircraft portfolio grows, the Group aims to lease more
CALC aims to become a one-stop aircraft solutions provider,
aircraft to overseas airlines to diversify its client base and
and to capture the full value-chain of an aircraft life cycle. This
widen its aviation expertise. The number of aircraft leased to
includes a) the purchase of new aircraft, b) structured finance,
overseas airlines has grown from 0 in 2014 to 15 in 2016. This
c) lease negotiaitons, d) asset management, e) fleet
globalisation strategy also includes CALC seeking potential
replacement package deals, f) sale and leaseback of used
overseas M&A opportunities to speed up its growth.
aircraft, and e) aircraft disassembly. While CALC’s existing
business focuses on new aircraft leasing, its investment in Downstream expansion into aircraft disassembly business
Aircraft Recycling International Ltd (ARI) would focus on mid- could reap future rewards. CALC has a 48% stake in ARI,
aged aircraft leasing as well as the disassembly of retired which is building Asia’s largest aircraft disassembly centre near
aircraft (more on this below). Harbin Taiping International Airport, covering an area of
300,000 square metres. Slated to commence operations in the
Fleet expansion plan – to grow to at least 173 aircraft by
second half of 2017, ARI aims to reach a dismantlling capacity
2022F. With a firm order book of 92 aircraft to be delivered
of 20 aircraft per annum in 2018, and could contribute
by 2022, CALC is poised to more than double its aircraft
significantly to CALC’s bottomline from 2018 onwards.
portfolio, currently at 81, which will provide it with strong
organic growth in revenue and earnings. In addition to the Other shareholders in ARI include Sky Cheer with 20%, FPAM
current order book with Airbus, CALC will also look to expand (CALC’s major shareholder) with 18%, and China Everbright
its fleet through the purchase of aircraft in the secondary (CALC’s largest shareholder) with 14%.
market, and also through pop-up orders from Airbus or
With c. 12,000 aircraft to be retired in the next 20 years, a
Boeing.
growing number of which are in China, ARI is well positioned
Realisation of lease receivables for gains. CALC sells the to benefit from this. We have yet to factor in the contribution
remaining rental receivables for aircraft leases to investors to of ARI to CALC’s forecast.
augment its cashflow and earnings. In March 2015 and
China Aircraft Global Venture (CAG) Fund. CALC is seeking
January 2016, CALC signed a framework agreement with the
to build up a new platform (China Aircraft Global Venture) to
Bank of Communications Company Limited and the Shanghai
capture demand for aircraft leasing and management
Branch of China Construction Bank for the realisation of lease
solutions. CAG will be a composite fund comprising of shares,
receivables for 20 aircraft and 15 aircraft respectively.
junior debt, and senior debt with a target equity size of
Underpined by these agreements and given firm demand for
US$500m – US$1bn, and it will be focused on aircraft leasing
such products in China, CALC targets to realise 15 aircraft or
and transactions incidental to leasing, trading and financing of
more annually from 2017 onwards.
aircraft. If successful, CAG would be an additional source of
Diversified and flexible financing channels. To fund the income for CALC as an asset manager and help to reduce the
business and its growth, CALC has utilised and accessed a gearing ratio of CALC, while strengthening CALC’s position
wide variety of financing channels. This includes 1) realisation with OEM manufacturers for aircraft purchases.
of lease receivables as explained above; 2) bank borrowings,
Sound and active risk management. To achieve the right
which have been one of the Group’s key sources to finance
balance between risk and return, CALC actively monitors and
aircraft acquisitions; 3) covertible bonds, such as the
manages all aspects of the Group’s business risks, including 1)
US$115m convertible bonds issued in March 2015 (US$75m
counterparty risk, 2) asset risk, 3) business operation risk, 4)
of which was repurchased in July 2016 to lower interest costs);
corporate and compliance risk, and 5) financial market risk.
4) Medium Term Notes and USD Bonds – CALC had
successfully issued both Medium Term Notes and USD Bonds CALC manages interest risk via 1) matching fixed rate leases
in 2015 and 2016; 5) ECA financing and credit support – this with fixed rate debt (22 out of 70 aircraft in 1H16), hedging
is an alternative source of financing for CALC. In fact, the fixed rate leases with floating rate debt (15 of 70 aircraft in
Group has financing for three aircraft backed by a guarantee 1H16), matching floating rate leases with floating rate debt (3
issued by UK Export Finance; 6) JOLCO – CALC closed its first out of 70 aircraft in 1H16), realisation of finance lease
Japanese Operating Lease with a Call Option financing to two reiceivables (11 of 70 aircraft in 1H16). This means that only a
new A320s delivered to Pegasus Airlines in June 2017; 7) small proportion of the Group’s leases are exposed to rising
placement of new shares – CALC placed out 40m new shares interest rates.
to independent shareholders in August 2016 at HK$8 per
share.
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Company Focus
FORECASTS & FINANCIALS
23% CAGR in revenues from 2015 – 2018F, driven by growth

Government subsidies to be steady. We assume that
in lease income ... Underpinned by growth in its owned fleet
government subsidies will continue to be steady for CALC as it
from 63 as at end 2015 to 125 by end 2018F, which is backed
grows its fleet and expand its China business, coming in at
by the Group’s order book with Airbus as well as through
between HK$200m to HK$242m per year between 2016 to
other forms of aircraft acquisitions, we project CALC’s lease
2018.
income to grow from a total of HK$1.24bn in 2015 to
HK$2.06bn by 2018F. 29% CAGR in operating profit from 2015 – 2018F. Driven by
the firm growth in revenues, and coupled with operating
… as well as higher gains from disposal of finance lease
leverage, we project the Group’s operating earnings to grow
receivables. At the same time, CALC is expected to increase
at 29% CAGR from 2015 to 2018F, from HK$481m in 2015,
the number of aircraft finance lease receivables it realises to
to HK$1,036m by 2018F.
14 in 2016E and at least 15 per annum in 2017F and 2018F,
thereby growing income from disposal of finance lease Contribution from aircraft disassembly yet to be factored in.
receivables substantially from HK$54m in 2015, to HK$540m As ARI, CALC’s aircraft disasembly business in Harbin, is only
by 2018F. expected to commence operations in 2H17, we await further
clarity on the potential revenue and margins of this business
before factoring this investment in our financial forecasts for
CALC.
Key Forecasts and Assumptions

FYE Dec HK$m 2014 2015 2016F 2017F 2018F
Financial lease income 714.7 1015.4 1246.4 1339.8 1373.1

Operating lease income 182.1 223.9 359.2 531.3 683.1
Other income 248.1 310.0 633.0 713.0 795.0
Gain from disposal of finance lease receivables 111.5 54.1 420.0 480.0 540.0
Government subsidy 133.9 242.6 200.0 220.0 242.0
Others 2.7 13.3 13.0 13.0 13.0
Total Revenue 1145.0 1549.3 2238.7 2584.1 2851.2
Interest expense 520.5 753.7 941.4 1090.4 1176.2

Depreciation 71.31 91.30 150.22 222.18 285.66
Other operating expenses 199.9 223.3 302.2 328.2 353.6
Total operating costs 791.7 1068.2 1393.9 1640.8 1815.4
Operating Profit 353.2 481.1 844.8 943.3 1035.8
Aircraft on
Finance Lease 40 57 69 87 105
Less total finance lease receivables sold 5 7 14 30 48
Net Finance lease 35 50 55 57 57
Operating Lease 4 6 12 16 20
Total 44 63 81 103 125
Number of aircraft lease receivable realisations 4 2 14 16 18
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Company Focus
Income Statement
Net profit CAGR of 29% over 2015-2018F to HK$808m by 2018. Backed by its
growing fleet, CALC’s lease income is projected to grow steadily over the next few
years, supplemented by gains from the sale of its finance lease receivables. This
should help drive the projected growth in the Group’s net profit, from HK$380m in
2015 to HK$808m by 2018F.
Tax rate of 22% assumed. CALC has had a simple average tax rate of just over 21%
in the last four years, and we have assumed a tax rate of 22% for the Group going
forward.
Income Statement (HK$ m) Margins Trend

FY Dec 2013A 2014A 2015A 2016F 2017F 2018F 83.0%
Revenue 687 1,145 1,549 2,239 2,584 2,851
73.0%
Cost of Goods Sold (54) (71) (91) (150) (222) (286)
Gross Profit 633 1,074 1,458 2,088 2,362 2,566 63.0%
Other Opng (Exp)/Inc (91) (200) (223) (302) (328) (354) 53.0%
Operating Profit 541 874 1,235 1,786 2,034 2,212
43.0%
Other Non Opg (Exp)/Inc (2) 27 (1) 0 0 0
Associates & JV Inc 0 0 0 0 0 0 33.0%
Net Interest (Exp)/Inc (330) (521) (754) (941) (1,090) (1,176) 23.0%
2014A 2015A 2016F 2017F 2018F
Exceptional Gain/(Loss) 0 0 0 0 0 0
Operating Margin % Net Income Margin %
Pre-tax Profit 210 381 480 845 943 1,036
Tax (37) (78) (100) (186) (208) (228)
Minority Interest 0 0 0 0 0 0
Preference Dividend 0 0 0 0 0 0
Net Profit 173 303 380 659 736 808
Net Profit before Except. 173 303 380 659 736 808
EBITDA 594 973 1,325 1,936 2,256 2,498
Growth
Revenue Gth (%) 53.4 66.7 35.3 44.5 15.4 10.3
EBITDA Gth (%) 45.1 63.7 36.3 46.1 16.5 10.7
Opg Profit Gth (%) 43.5 61.4 41.3 44.7 13.9 8.8
Net Profit Gth (%) 81.3 75.5 25.6 73.3 11.7 9.8
Margins & Ratio
Gross Margins (%) 92.1 93.8 94.1 93.3 91.4 90.0
Opg Profit Margin (%) 78.8 76.3 79.7 79.8 78.7 77.6
Net Profit Margin (%) 25.1 26.4 24.5 29.4 28.5 28.3
ROAE (%) 21.1 22.4 19.3 25.0 22.0 20.9
ROA (%) 1.7 1.9 1.8 2.5 2.5 2.5
ROCE (%) 4.5 4.5 4.6 5.3 5.3 5.4
Div Payout Ratio (%) 70.7 31.3 35.3 35.0 35.0 35.0
Net Interest Cover (x) 1.6 1.7 1.6 1.9 1.9 1.9
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Company Focus
1H16 earnings more than doubled y-o-y, lifted by increased leasing income and higher
gains on disposal of finance lease receivables. CALC’s net profit rose by 106% y-o-y
to HK$240m, on higher revenue of 61% to HK$1,027m. Revenue jumped
substantially due to higher leasing revenue from a larger aircraft fleet, as well as from
higher gains from disposal of finance lease receviables. The Group’s fleet rose from 50
aircraft as at end 1H15 to 70 by end 1H16, a growth of 40% or 20 aircraft.
Interim Income Statement (HK$ m) Margins Trend

FY Dec 2H2013 1H2014 2H2014 1H2015 2H2015 1H2016 90%
80%
Revenue 422 432 713 636 914 1,027 70%

60%
Cost of Goods Sold (27) (28) (44) (45) (47) (70)
50%
Gross Profit 395 405 669 591 867 957
40%
Other Oper. (Exp)/Inc (59) (96) (104) (96) (128) (138) 30%
Operating Profit 336 309 565 496 739 819 20%
Other Non Opg (1) 15 12 0 0 (8) 10%
Associates & JV Inc 0 0 0 0 0 0 0%
1H13
2H13
1H14
2H14
1H15
2H15
1H16
Net Interest (Exp)/Inc (190) (238) (283) (337) (416) (475) Operating Margin % Net Income Margin %
Exceptional Gain/(Loss) N/A N/A N/A N/A N/A N/A
Pre-tax Profit 145 86 294 158 322 335
Tax (17) (23) (55) (41) (59) (95)
Minority Interest 0 0 0 0 0 0
Net Profit 128 63 240 117 263 240
Net profit bef Except. 128 63 240 117 263 240
Growth
Revenue Gth (%) N/A 63.5 68.7 47.0 28.2 61.5
Opg Profit Gth (%) N/A 50.5 68.0 60.5 30.8 65.3
Net Profit Gth (%) N/A 42.5 86.8 85.7 9.8 105.7
Margins
Gross Margins (%) 93.6 93.6 93.9 93.0 94.9 93.2
Opg Profit Margins (%) 79.6 71.4 79.3 77.9 80.9 79.8
Net Profit Margins (%) 30.4 14.5 33.7 18.4 28.8 23.4
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Company Focus
Balance Sheet
Gearing to improve as CALC continues with disposal of finance lease receivables, and
as equity base grows from on-going profitability. CALC’s net gearing is projected to
improve from 6.8x as at end 2015 to 4.7x by end 2018F. This is mainly due to 1) CALC
ramping up and maintaining the number of aircraft realisations at 14-18 per year from
2016E to 2018F and 2) the Group’s equity base growing from HK$2.2bn in 2015 to
HK$4.1bn by end 2018F, which would be mainly from higher retained earnings as
CALC remains highly profitable.
Balance Sheet (HK$ m) Asset Breakdown

FY Dec 2013A 2014A 2015A 2016F 2017F 2018F Net Fixed
Debtors -
Assets -
0.0%
70.1%
Net Fixed Assets 1,487 1,707 2,413 4,160 5,540 6,920
Invts in Associates & JVs 0 0 0 0 0 0
Other LT Assets 7,679 11,443 16,473 18,150 18,810 18,810
Cash & ST Invts 3,653 5,148 5,042 6,216 6,831 7,277 Assocs'/JVs -
0.0%
Inventory 0 0 0 0 0 0 Inventory -
0.0%
Debtors 0 0 0 0 0 0 Bank, Cash
and Liquid
Other Current Assets 14 15 19 19 19 19 Assets -
Total Assets 12,833 18,313 23,947 28,545 31,201 33,027 29.9%
ST Debt 2,821 4,690 3,412 4,000 4,500 5,000

Creditors 0 0 0 0 0 0
Other Current Liab 9 22 38 50 93 104
LT Debt 8,771 11,295 16,558 19,558 20,558 21,558
Other LT Liabilities 275 526 1,731 1,845 2,445 2,235
Shareholder’s Equity 939 1,761 2,189 3,092 3,605 4,130
Minority Interests 20 19 19 0 0 0
Total Cap. & Liab. 12,833 18,313 23,947 28,545 31,201 33,027
Non-Cash Wkg. Capital 5 (7) (18) (31) (73) (84)

Net Cash/(Debt) (7,938) (10,837) (14,928) (17,342) (18,227) (19,281)
Debtors Turn (avg days) N/A N/A N/A N/A N/A N/A
Creditors Turn (avg days) N/A N/A N/A N/A N/A N/A
Inventory Turn (avg days) N/A N/A N/A N/A N/A N/A
Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1 0.1
Current Ratio (x) 1.3 1.1 1.5 1.5 1.5 1.4
Quick Ratio (x) 1.3 1.1 1.5 1.5 1.5 1.4
Net Debt/Equity (X) 8.3 6.1 6.8 5.6 5.1 4.7
Net Debt/Equity ex MI (X) 8.5 6.2 6.8 5.6 5.1 4.7
Capex to Debt (%) 11.8 9.2 3.5 8.1 6.4 6.3
Z-Score (X) NA NA NA NA NA NA
Page 18
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Company Focus
Cash Flows
Improved operating cash flows on higher disposal of finance lease receivables. We

project CALC’s operating cash flow to improve from a net outflow of over HK$4bn in
2015 to an outflow of less than HK$800m in 2016E, a net inflow of HK$440m in
2017F, and inflow of HK$1.2bn in 2018F on higher pretax earnings, and more
critically, as we project CALC to realise 14, 16, and 18 finance lease receivables in
2016F, 2017F, and 2018F respectively.
Dividend payout ratio of 35% assumed, with potential upside. CALC paid out
between 30%-35% of its earnings in the last two years, and we have assumed a 35%
payout ratio in the years ahead. Given the Group’s fast improving balance sheet and
stronger cash flows from gains from the disposal of finance lease receivables, there is
potential for CALC to increase its payout ratio.
Capital Expenditure
Cash Flow Statement (HK$ m)
FY Dec 2013A 2014A 2015A 2016F 2017F 2018F HK$m
2,000.0
1,800.0
Pre-Tax Profit 210 381 480 845 943 1,036 1,600.0
Dep. & Amort. 54 71 91 150 222 286 1,400.0
Tax Paid (37) (78) (100) (186) (208) (228) 1,200.0

1,000.0
Assoc. & JV Inc/(loss) 0 0 0 0 0 0 800.0
(Pft)/ Loss on disposal of FAs 0 0 0 0 0 0 600.0
Chg in Wkg.Cap. (3,134) (3,732) (4,553) (1,565) (517) 111 400.0

200.0
Other Operating CF (2) (1) 20 (33) 1 (14) 0.0
2014A 2015A 2016F 2017F 2018F
Net Operating CF (2,909) (3,359) (4,062) (788) 442 1,191
Capital Expenditure (-)
Capital Exp.(net) (1,364) (1,473) (700) (1,898) (1,602) (1,666)
Other Invts.(net) 0 0 0 0 0 0
Invts in Assoc. & JV 0 0 0 0 0 0
Div from Assoc & JV 0 0 0 0 0 0
Other Investing CF 0 1 2 (19) 0 0
Net Investing CF (1,364) (1,472) (698) (1,917) (1,602) (1,666)
Div Paid (23) (69) (119) (198) (259) (269)
Chg in Gross Debt 5,516 4,269 3,990 3,102 1,500 1,190
Capital Issues 109 621 908 475 34 0
Other Financing CF (38) 78 (40) (292) 0 0
Net Financing CF 5,564 4,899 4,740 3,088 1,275 921
Currency Adjustments 2 (9) (16) 0 0 0
Chg in Cash 1,294 58 (36) 382 115 446
Opg CFPS (HK$) 0.48 0.64 0.81 1.13 1.38 1.56
Free CFPS (HK$) (9.11) (8.25) (7.86) (3.90) (1.67) (0.68)
Page 19
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Company Focus
VALUATION 12-month TP of HK$11.60. We value CALC based on a

blended valuation of 10x FY18F P/E and 2x FY18F P/B to derive
Trading below -1 SD to its historical PE band and at -1 SD P/B our 12-month target price of HK$11.60. We applied a higher
band. CALC is currently trading at 8.7x FY17F PE, which is than average PE multiple to reflect the Group’s faster than
below -1 SD of 10.4x PE, and well below the average of 14.7x industry earnings growth pace while the higher than peer
PE.Meanwhile, the stock is trading at 1.85x FY17F P/B, which is average target P/B multiple of 2x reflects the Group’s industry-
at -1 SD of its average valuation of 2.6x P/B. leading ROE of over 19% (22.7% based on consensus).
Relative to its peer group, CALC offers good value, particularly CALC’s 12-month Target Price Calculation
given its 3.9% dividend yield. At 9.5x FY16E PE, declining to
8.2x FY17F PE, CALC is trading cheaper in terms of PE Methodology Multiple Year TP HK$
compared to peer average of 9.7x FY16E PE and 8.6x FY17F PE
based on consensus estimates. However, while CALC is trading Target P/BV 2.00 FY18 11.91
at a higher 1.9x FY17F P/B, its ROE at >19% is substantially Target PE 10.0 FY18 11.20
higher than its peer average of 12.1%. CALC’s prospective Blended TP 11.60
dividend yield of 4.2% is also more attractive than its peer
average of 2.1%. Source: DBS Bank estimates
PE band chart PB band chart

(x)
(x)
4.9
25.4
4.4
+2sd: 23.4x
3.9 +2sd: 4.03x
20.4
+1sd: 19.1x 3.4
+1sd: 3.3x
2.9
15.4
Avg: 14.7x Avg: 2.57x
2.4
10.4 ‐1sd: 10.4x 1.9 ‐1sd: 1.83x

1.4
5.4 ‐2sd: 6x ‐2sd: 1.1x

0.9
Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Source: Thomson Reuters, DBS Vickers Source: Bloomberg, DBS Vickers
Peer valuations – Consensus Estimates (9 Feb 2017)
Mkt Cap --------- PER ---------- Price-to-Book ROE Crnt

Company Last Px US$m Hist Crnt Forw Hist Crnt Hist Crnt Yield
AerCap Holdings NV USD 45.94 9,204 7.3 7.3 7.5 1.10 0.99 15.0% 13.5% 1.4%
Air Lease Corp USD 37.86 3,894 13.8 11.1 10.2 1.31 1.17 9.5% 10.6% 0.5%
Aircastle Ltd USD 22.78 1,791 14.1 13.0 10.1 1.03 0.98 7.3% 7.6% 4.3%
FLY Leasing Ltd USD 13.91 451 6.6 8.2 7.2 0.73 0.65 11.0% 8.0% 0.0%
CALC HKD 9.23 797 13.1 9.5 8.1 2.64 2.17 20.2% 22.8% 3.9%
BOC Aviation HKD 40.60 3,631 8.5 7.5 1.08 12.8% 2.4%
CDB Financial Leasing HKD 1.92 3,128 10.6 9.3 0.99 9.4% 2.5%
Average 11.0 9.7 8.6 1.36 1.15 12.6% 12.1% 2.1%
Source: ThomsonReuters, DBS Bank
Page 20
Page 68
Hong Kong Equity Explorer
Bloomberg: 1606 HK | Reuters: 1606.HK Refer to important disclosures at the end of this report
DBS Group Research . Equity 10 Feb 2017
NOT RATED HK$1.94 HSI : 23,525.14 China’s largest diversified lessor

Closing price as of 10 Jan 2017 • Improved outlook for China’s largest leasing
Return *: 2 company after huge impairment losses in 2015
Risk: Moderate • Higher profitability from reducing exposure to
Fair Value : 12-Month HK$ 2.01 riskier clients
Analyst • Renewed focus on more profitable aircraft and
Paul YONG CFA +65 6682 3712 infrastructure segments to drive future growth
paulyong@dbs.com
• Rebound in profitability to c. 10% ROE should support
1x P/B valuation, translating to a fair value of HK$2.01
Price Relative
HK$ Relative Index
The Business
2.2
214
Profitability to improve in 2016. The leasing arm of the China
2.1 194 Development Bank, CDB Financial Leasing (CDBFL) focuses on
2.0 174 aircraft and infrastructure leasing mainly in China. The company
1.9
154
recognised significant impairment losses in 2015 as a result of
1.8
134
114
the economic slowdown but was profitable nonetheless. With a
1.7 94
focus on filtering out riskier clients, and on the more profitable
1.6 74 aircraft and infrastructure leasing segments, profitability ahead
Jul-16 Oct-16 Jan-17
China Development Bank Financial Leasing (LHS)
should improve.
Relative HSI (RHS)
Demand for leasing is growing in China. With state support,
Forecasts and Valuation internationalisation of RMB and ever growing demand for
FY Dec (RMBm) 2015A 2016F 2017F 2018F customised leasing products, demand for leasing is on a growth
Revenue 10,641 11,273 11,978 12,841 trajectory in China. In particular, aircraft and infrastructure
EBITDA 8,327 9,594 10,506 11,367 leasing is on the rise backed by strong demand for air travel and
Pre-tax Profit 1,300 2,373 2,854 3,350 leasing solutions for infrastructure funding.
Net Profit 1,053 1,922 2,312 2,713 The Stock
Net Pft (Pre Ex.) 1,139 1,922 2,312 2,713 Fair value of HK$2.01, based on 1x P/B. With improving
EPS (HK cts) 12.5 19.6 20.6 24.2
profitability in 2016E and 2017F on lower impairment losses, we
EPS Pre Ex. (HK cts) 13.5 19.6 20.6 24.2
EPS Gth (%) (45) 57 5 17
peg the stock’s fair value at 1x P/B against a projected ROE of
EPS Gth Pre Ex (%) (40) 45 5 17 10.3% for 2016E and 9.8% for 2017F.
Diluted EPS (HK cts) 13.5 19.6 20.6 24.2 Stronger than expected rebound in profitability could rerate
Net DPS (HK cts) 1.78 0.0 0.0 0.0 share price further. If CDBFL can manage impairment losses or
BV Per Share (HK cts) 178 200 220 245 improve margins to a level that are better than expected, the
PE (X) 15.6 10.0 9.5 8.1 resultant higher earnings should be a share price catalyst.
EV/EBITDA (X) 16.2 14.8 13.6 12.4 Key risk. The group’s profitability would be affected if it cannot
Net Div Yield (%) 0.9 0.0 0.0 0.0 manage asset quality – leading to substantial impairment losses.
P/Book Value (X) 1.1 1.0 0.9 0.8
Net Debt/Equity (X) 7.9 5.5 4.9 4.3 At A Glance
ROAE (%) 7.3 10.3 9.8 10.4 Issued Capital (m shrs) 12,642
Mkt. Cap (HK$m/US$m) 23,273 / 3,129
Consensus EPS (HK cts): 18.0 20.5 24.1
Major Shareholders (%)
Other Broker Recs: B: 2 S: 0 H: 4
China Development Bank 64.7
ICB Industry : Industrial Three Gorges Capital 10.4
ICB Sector: Industrial Transportation HNA Group 6.3
Principal Business: China Development Bank Financial Leasing Co., Free Float (%) 18.7
Ltd. provides leasing services to customers in industries including 3m Avg. Daily Val (US$m) 0.22
aviation, infrastructure, shipping, commercial vehicle and
construction machinery.
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
*This Equity Explorer report represents a preliminary assessment of the subject company, and does not represent initiation into DBSV’s
coverage universe. As such DBSV does not commit to regular updates on an ongoing basis. The rating system is distinct from stocks in our
regular coverage universe and is explained further on the back page of this report.
ed: JS / sa: AH, PY
Page 69
Equity Explorer
REVENUE DRIVERS
CDB’s leasing platform. As the sole leasing arm of China Chart 1 : Breakdown of 2015 revenue (RMB 10.6bn)
Development Bank (CDB), one of the three policy banks in
the PRC, CDBFL has the unique opportunity to build strategic
relationships with industry-leading enterprises which have
business ties with CDB. In addition, CDBFL also enjoys
balance sheet and risk management support from CDB, and
a quasi-sovereign credit rating while maintaining an
independent decision making system.
CDBFL has four leasing segments : 1) aircraft, 2)

infrastructure, 3) ship, commercial vehicle and construction
machinery (SCVC), and 4) others, which includes leasing of
commercial property and manufacturing equipment to
entities including SMEs.
It should be noted that CDBFL used to focus on leasing Chart 2: Operating Cost Breakdown
aircraft and infrastructure to medium and large enterprises 100%
before 2012, before expanding to other segments in 2012 90%

80%
(also to SMEs in aircraft and infrastructure). With the
70%
slowdown in the PRC, the new segments have fallen on hard 60%
times. Therefore, CDBFL is in the process of reducing 50%
exposure to riskier customers in these two segments and 40%
plans to renew its focus on aircraft and infrastructure 30%
segments which have continued to perform well amid the 20%
slowdown. 10%
0%
Well-known brand with a dominant position... CDBFL plans 2013 2014 2015 1H16
to leverage upon its position as the largest lessor in the PRC Interest expense Depreciation & Amortisation Impairment losses Others
(by total revenue according to Frost & Sullivan) and well-

Chart 3: CDBFL’s owned aircraft fleet as at 31-12-2015
respected brand name enhanced by its strategic partnership
with CDB to continue to grow its high quality asset base.
… in a robust leasing market. PRC’s leasing industry is on a

growth trajectory driven by ongoing market-oriented
reforms (e.g. in Sep-15, State Council published national
strategy to encourage leasing in segments such as aircraft
and infrastructure), internationalisation of RMB, and
increasing demand for customised leasing products and
services. Therefore, we expect leasing’s penetration rate in
the PRC (leased assets to total fixed asset investment),
currently at 5%, to rise towards the level of developed
countries (e.g. above 20% in the USA and UK).
*Includes aircraft under both financial and operating lease
COST STRUCTURE Source: Company , DBS Bank
Impairment costs the main variable as other costs are largely
stable. CDBFL’s main costs are interest cost and depreciation
& amortisation, which usually are relatively stable with less
volatility. However, impairment costs rose 152% to RMB2bn
in 2015, due to i) an increase in non-performing assets,
especially in the ‘other’ segment, ii) limitations in CDBFL’s
risk management process, and iii) increase in allowance for
impairment losses.
Page 2
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Equity Explorer
KEY OPERATING ASSETS

Young aircraft fleet, mostly popular models. The key Table 1: Largest lessors in China
operating assets of CDBFL are the owned aircraft fleet that Revenue Market
are leased out on operating leases. In addition to possessing (RMB bn) share
aircraft that are in high demand such as A320, A330 and CDB Leasing 11.7 6.1%
Boeing 737, the average age of its fleet was only 4.5 years ICBC Financial Leasing 10.5 5.5%
as at the end of 2015.
Far East Horizon Limited 10.1 5.3%
Finance lease receivables account for over half of total Minsheng Financial Leasing 9.1 4.8%
assets. At the end of 2015, finance lease receivables totalled
c. RMB81bn, forming 52% of the group’s total assets. This Bohai Leasing 6.9 3.6%
represented the bulk of the group’s finance leases in the
infrastructure, ship, commercial vehicle and construction
machinery, as well as ‘Others’ segments. Table 2: Key Management Team
GROWTH PROSPECTS Wang Xuedong, • Prior to joining the company in Aug-2014,
Chairman/ served various leadership roles in CDB for 20
Demand for aircraft is robust. Driven by rising air passenger Executive years, latest as the President of the CDB
travel (measured by Revenue Passenger Kilometre or RPK), Director Hunan Branch from Mar-2008 to Aug-2014.
demand for aircraft is expected to remain solid; global RPKs • Graduate of Dalian College of Technology,
are expected to rise at a CAGR of 5.1%, and at a much completed a master’s degree in economics at
higher rate of 11.3% in the PRC from 2014 to 2019. As Central University of Finance and Economics
CDBFL’s fleet and order book are made up of aircraft models in Beijing.
that are in high demand, the demand for air travel should Fan Xun • When Mr. Fan joined the company in Mar-
translate into strong demand for CDBFL’s aircraft. Vice Chairman/ 2015, he had already served in CDB for close
Board, Executive to 18 years. Most recent appointment was as
Director, Chairman of the board of supervisors of CDB
Infrastructure leasing on the rise in PRC. With the economic President Securities from Aug-2010 to Mar-2015.
reforms in PRC and rising urbanisation, leasing is seen as a
more attractive proposition to local governments and • Alumni of Tianjin University and holds a
master’s degree in economics from Tianjin
construction firms in the PRC in terms of efficient use of College of Finance and Economics.
funds and flexibility in lease terms. Backed by its leading Geng Tiejun • Close to 11 years of leadership roles at CDB.
position in the market and strategic relationship with CDB, Executive • Graduate of Hunan University in Changsha
CDBFL is expected to ride this growth wave. Director/ and holds postgraduate qualifications from
Vice President the Party School of the Central Committee in
MANAGEMENT & STRATEGY Beijing and Stevens Institute of Technology in
Hoboken.
Well experienced and closely tied with CDB. Among the well
experienced Board of Directors, Chairman - Mr. Wang
Xuedong- and Vice Chairman and President - Mr. Fan Xun -
stand out with their past experience in CDB , which has
helped CDBFL to maintain a cordial relationship with CDB. It
should be noted that out of the four Executive Directors, Mr.
Geng Tiejun is also a CDB affiliated director.
Leadership is market oriented. CDBFL’s management has the

mandate to be market oriented and is open to growth
through acquisitions in addition to organic growth.
Page 3
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Equity Explorer
Key Assumptions
FY Dec 2014 2015A 2016F 2017F 2018F
Aircraft fleet 169 180 214 245 272

Asset growth in infrastructure leasing (12.8) 16.7 4.00 4.00 4.00
Asset yield on aircraft leasing (%) 10.0 9.30 9.10 9.10 9.10
Asset yield on infrastructure leasing (%) 7.20 6.10 6.00 5.90 5.80
Average cost of debt (%) 4.70 3.80 3.90 4.00 4.10
Segmental Breakdown
FY Dec 2013A 2014A 2015A 2016F 2017F 2018F
Revenues (RMBm)
Aircraft leasing 3,680 4,406 4,729 5,265 5,848 6,587
Infrastructure leasing 4,119 4,009 3,426 3,712 3,797 3,882
Ship, Commercial Vehicle 1,227 1,385 1,197 1,120 1,154 1,189
Other leasing 2,023 1,525 1,289 1,175 1,180 1,184
Total 11,049 11,325 10,641 11,273 11,978 12,841
Income Statement (RMBm) Margins Trend

FY Dec 2013A 2014A 2015A 2016F 2017F 2018F
69.0%
Revenue 11,049 11,325 10,641 11,273 11,978 12,841 59.0%

Cost of Goods Sold 0.0 0.0 0.0 0.0 0.0 0.0
49.0%
Gross Profit 0.0 0.0 0.0 0.0 0.0 0.0
Other Opng (Exp)/Inc (3,478) (3,249) (4,626) (3,983) (4,023) (4,338) 39.0%
Operating Profit 7,572 8,075 6,014 7,290 7,955 8,503 29.0%
Other Non Opg (Exp)/Inc 376 155 278 0.0 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 0.0 19.0%
Net Interest (Exp)/Inc (5,511) (5,854) (4,907) (4,917) (5,101) (5,153) 9.0%
Exceptional Gain/(Loss) 62.9 3.95 (86.3) 0.0 0.0 0.0 2014A 2015A 2016F 2017F 2018F
Pre-tax Profit 2,499 2,380 1,300 2,373 2,854 3,350 Operating Margin % Net Income Margin %
Tax (612) (464) (247) (451) (543) (637)
Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0
Preference Dividend 0.0 0.0 0.0 0.0 0.0 0.0
Net Profit 1,887 1,916 1,053 1,922 2,312 2,713
Net Profit before Except. 1,824 1,912 1,139 1,922 2,312 2,713
EBITDA 9,936 10,090 8,327 9,594 10,506 11,367
Growth
Revenue Gth (%) nm 2.5 (6.0) 5.9 6.3 7.2
EBITDA Gth (%) nm 1.6 (17.5) 15.2 9.5 8.2
Opg Profit Gth (%) nm 6.7 (25.5) 21.2 9.1 6.9
Net Profit Gth (Pre-ex) (%) nm 4.8 (40.4) 68.8 20.3 17.4
Margins & Ratio
Gross Margins (%) 100.0 100.0 100.0 100.0 100.0 100.0
Opg Profit Margin (%) 68.5 71.3 56.5 64.7 66.4 66.2
Net Profit Margin (%) 17.1 16.9 9.9 17.1 19.3 21.1
ROAE (%) N/A 14.7 7.3 10.3 9.8 10.4
ROA (%) 1.3 1.4 0.7 1.1 1.4 1.6
ROCE (%) 4.0 4.7 3.1 3.5 3.8 4.1
Div Payout Ratio (%) 0.0 0.0 14.2 0.0 0.0 0.0
Net Interest Cover (x) 1.4 1.4 1.2 1.5 1.6 1.7
Page 4
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Equity Explorer
Balance Sheet (RMBm) Asset Breakdown (2016)

FY Dec 2013A 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 32,237 36,598 42,625 46,319 46,228 46,694

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 0.0
Other LT Assets 57,059 63,625 64,999 70,570 70,433 71,137
Cash & ST Invts 12,748 6,511 8,972 9,822 9,801 9,908
Inventory 0.0 0.0 0.0 0.0 0.0 0.0
Debtors 25,379 14,065 13,827 15,025 14,996 15,147
Other Current Assets 14,956 19,569 25,272 27,451 27,397 27,673
Total Assets 142,378 140,366 155,695 169,187 168,855 170,559
ST Debt 77,281 74,486 86,076 90,047 86,903 84,864

Creditor 0.0 0.0 0.0 0.0 0.0 0.0
Other Current Liab 646 734 711 921 1,012 1,106
LT Debt 42,615 41,003 41,076 42,970 43,379 44,315
Other LT Liabilities 9,708 10,132 12,839 12,839 12,839 12,839
Shareholder’s Equity 12,129 14,010 14,993 22,410 24,722 27,435
Minority Interests 0.0 0.0 0.0 0.0 0.0 0.0
Total Cap. & Liab. 142,378 140,366 155,695 169,187 168,855 170,559
Non-Cash Wkg. Capital 39,689 32,899 38,388 41,556 41,381 41,713

Net Cash/(Debt) (107,148) (108,979) (118,179) (123,195) (120,481) (119,270)
Debtors Turn (avg days) N/A 635.6 478.4 467.1 457.4 428.4
Creditors Turn (avg days) N/A N/A N/A N/A N/A N/A
Inventory Turn (avg days) N/A N/A N/A N/A N/A N/A
Asset Turnover (x) NM 0.1 0.1 0.1 0.1 0.1
Current Ratio (x) 0.7 0.5 0.6 0.6 0.6 0.6
Quick Ratio (x) 0.5 0.3 0.3 0.3 0.3 0.3
Net Debt/Equity (X) 8.8 7.8 7.9 5.5 4.9 4.3
Net Debt/Equity ex MI (X) 8.8 7.8 7.9 5.5 4.9 4.3
Capex to Debt (%) 4.3 7.5 7.0 9.4 2.4 3.7
Page 5
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Equity Explorer
Cash Flow Statement (RMBm) Capital Expenditure

FY Dec 2013A 2014A 2015A 2016F 2017F 2018F RMBm
14,000.0
Pre-Tax Profit 2,499 2,380 1,300 2,373 2,854 3,350 12,000.0

Dep. & Amort. 1,988 1,860 2,035 2,304 2,551 2,864 10,000.0
Tax Paid (533) (430) (512) (242) (451) (543)
8,000.0
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. 576 (5,703) 6,654 (3,377) 83.1 (427) 6,000.0
Other Operating CF 740 1,088 2,365 1,000 750 700 4,000.0
Net Operating CF 5,271 (804) 11,842 2,058 5,787 5,945 2,000.0

Capital Exp.(net) (5,195) (8,711) (8,849) (12,569) (3,073) (4,734) 0.0
Other Invts.(net) 359 (335) (1,500) 0.0 0.0 0.0 2014A 2015A 2016F 2017F 2018F
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 0.0 Capital Expenditure (-)
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 0.0
Other Investing CF (1,609) 1,130 446 0.0 0.0 0.0
Net Investing CF (6,444) (7,917) (9,904) (12,569) (3,073) (4,734)
Div Paid 0.0 0.0 (150) 0.0 0.0 0.0
Chg in Gross Debt 0.0 3,922 0.0 5,865 (2,735) (1,104)
Capital Issues 0.0 0.0 0.0 5,495 0.0 0.0
Other Financing CF (286) (309) (435) 0.0 0.0 0.0
Net Financing CF (286) 3,613 (584) 11,361 (2,735) (1,104)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0 0.0
Chg in Cash (1,460) (5,108) 1,354 849 (20.9) 107
Opg CFPS (HK cts) 55.7 58.1 61.5 55.3 50.9 56.8
Free CFPS (HK cts) 0.90 (113) 35.5 (107) 24.2 10.8
VALUATIONS
Current P/B vs Current ROE for aircraft lessors
Fair value of HK$2.01, based on 1x P/B. With reference to the
25.0%
chart on the right, CDBFL is trading at a slight premium to aircraft
CALC
lessors in terms of P/B vs ROE, but taking into account that the
group’s earnings are in the midst of normalising, we see the stock’s 20.0%
fair value at 1x P/B against a projected rebound in ROE from 7% to
10%. This translates to HK$2.01 on 1x FY16 P/B.
15.0% AerCap BOCA
Risk Assessment: Moderate

10.0% Air Lease
Category Risk Rating Wgt Wgtd Score FLY
1 (Low) - 3 (High) CDB Leasing
Earnings 2 40% 0.8 Air Castle
Financials 2 20% 0.4 5.0%
Shareholdings 2 40% 0.8
Overall 2.0
0.0%
0.00 0.50 1.00 1.50 2.00 2.50
Rebound in profitability the key to support or even re-rate
share price. The key support or catalyst for the share price would
Table 6: Peers’ Comparisons
be an improvement in earnings, which we opine will largely depend
9- F eb- 17 M k t Cap - - PE - - Pric e- t o- Book ROE Crnt
on minimising impairment losses. Company Last Px US$m Crnt F orw Hist Crnt Crnt Y ield
AerCap Holdings USD 45.94 9,204 7.3 7.5 1.1 0.99 13.5% 1.4%
Low free float; China Development Bank holds nearly two- Air Lease Corp USD 37.86 3,894 11.1 10.2 1.31 1.17 10.6% 0.5%
Aircastle Ltd USD 22.78 1,791 13 10.1 1.03 0.98 7.6% 4.3%
thirds of the shares. CDBFL’s shares are tightly held, with the top
FLY Leasing Ltd USD 13.91 451 8.2 7.2 0.73 0.65 8.0% 0.0%
three shareholders holding over 81% of the stock. The parent CALC HKD 9.23 797 9.5 8.1 2.64 2.17 22.8% 3.9%
company retains nearly 65% of the company post IPO and is BOC Aviation HKD 40.6 3,631 8.5 7.5 1.08 12.8% 2.4%
unlikely to pare down its stake below 51%. The third largest CDB F in Leasing HKD 1.92 3,128 10.6 9.3 0.99 9.4% 2.5%
A v erage 9.7 8.6 1.36 1.15 12.1% 2.1%
shareholder HNA Group, with 6.3% stake, has its own leasing arm
listed in China, and could possibly reduce its stake in the future.
Source: ThomsonReuters, DBS Bank
Page 6
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Industry Focus
Aircraft Leasing
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
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Insights Asian Aircraft Lessors On The Rise

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Insights Asian Aircraft Lessors On The Rise

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Asian Insights SparX – Aviation

Aircraft Leasing Refer to important disclosures at the end of this report

DBS Group Research . Equity 10 February 2017

Faced with lower growth and returns in other assets, and

Key risks. We believe that the risk of aircraft oversupply is

ASIAN INSIGHTS VICKERS SECURITIES

ASIAN INSIGHTS VICKERS SECURITIES

ASIAN INSIGHTS VICKERS SECURITIES

Emergence and Growth of Aircraft Lessors in Asia

ASIAN INSIGHTS VICKERS SECURITIES

Global air traffic is on a long term secular growth path

Source: Boeing, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

*Spending on recreational goods and services (2010 $US, PPP) 0.08

Source: Airbus, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Ranked the second and third largest aviation markets by RPK in

Middle East to lead long-term traffic growth. Leveraging its

ASIAN INSIGHTS VICKERS SECURITIES

Aircraft demand and fleet development

Breakdown of 2015 global fleet by region

2,000 1,370 1,550 Source: CAPA, IATA, DBS Bank

Source: CAPA, DBS Bank Europe 2.70%

North America 1.80%

ASIAN INSIGHTS VICKERS SECURITIES

Breakdown of global deliveries by aircraft type

North America Regional jet Narrow-body Wide-body

Source: Boeing, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Expected to be delivered through 2025, we believe the firm

Source: CAPA, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Aircraft delivery value by region from 2016-2035 (List prices) 2%

Va lue (2015, US$): 5,960 bn Source: Boeing, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Share of funding for aircraft lessor deliveries

Commercial bank debt. The largest players that provide 30%

Source: Boeing, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Aircraft leasing: A background

Operating leases as a % of global aircraft fleet

ASIAN INSIGHTS VICKERS SECURITIES

Source: Ascend, DBS Bank

Largest carriers lessees are from Asia-Pacific and Europe. Based

Top lessee by carriers/airlines (Jan 2016)

American Airlines 430

0 50 100 150 200 250 300 350 400 450 500

Source: Air Finance, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Strategies commonly employed by top lessors

Given the above, it is unsurprising that narrow-bodies are able

But evolution of wide-body jets could help lift proportion of

With the ability to conform to a wide range of carriers’ business

Top 10 lessors for wide bodies by fleet size (as at 7 February

Source: CAPA, DBS Bank

GECAS and AerCap dominate both the narrow-body… We

ASIAN INSIGHTS VICKERS SECURITIES

(1) Young fleet: Under this strategy, lessors typically manage

Lessors employing this strategy include ICBC Leasing, Avolon,

(2) Yield-focused: Lessors such as Aircastle and AWAS operate

(3) All-rounders: Armed with specialty knowledge and extensive

ASIAN INSIGHTS VICKERS SECURITIES