NOTE: The below originally appeared as the editorial in our December 4 One Minute Week newsletter. To find out more, and sign up for free, please click here.
In May this year a Chinese company bought the rights to make Saturday Night Live China.
US television execs should now be flying out to pitch Airplane Repo China. (Those of you who have not yet seen Airplane Repo can click here).
A lot of business jets were ordered in China between 2010 and 2012. The CEO of one OEM actually said: “Thank God for China,” in an interview in 2011. Some of these are now in default.
Demand fell sharply in 2013 when Xi Jinping became president of China and introduced a -very popular – anti-corruption crackdown. More than 100,000 people have been investigated. Most of the investigation has focused on state-owned companies. High profile convictions include Jiang Jiemin, a former chairman of PetroChina, who has been sentenced to 16 years.
Some of the people that have been investigated or convicted had bought business jets. There is one case where an owner has been detained by the government as part of the anti-corruption investigations. His aircraft is sitting on the runway since he was taken in for questioning.
The government has frozen all of his assets, including the aircraft. The aircraft’s management company asked if it could maintain the aircraft whilst it was parked. It was told that it could not touch it. It is a brave financier who is willing to challenge this.
Although the anti-corruption investigations are mainly focused on party officials and state-owned business, they are putting off other buyers. “We had a case where we were about to sign a deal and then the buyer – whose company’s main customer was the government – was told this did not look good,” says one financier. (It is worth stressing, that although a lot of aircraft are leaving the country, China is not closed to sales and some – including pre-owned aircraft – are still going in).
Getting aircraft back is not proving to be easy.
“Although most offshore financiers would require Cape Town filings as a condition to financing, surprisingly not all aircraft had Cape Town filings,” says Yi Liu, executive partner and attorney at law at Run Ming Law Office in Beijing, “and because of the way China implemented the Convention you still need leave from the Chinese court before you can repossess, deregister and export. It is not necessarily an easy process.”
“The fact is that we are too busy fixing other people’s messes to do that right now to say ‘we told you so’,” says Paul Jebely, head of aircraft finance at Clyde & Co. “I do, however, reserve the right to continue to preach that market participants get experienced advice, be it in respect of law, finance, operations or, if you need it, common commercial sense.”
Jebely adds: “As far as legal advice goes: it is just not important, until it is. A thousand monkeys sitting at a thousand PCs for a thousand hours can probably ‘paper a deal’ without ‘over lawyering’ it. But do not blame the monkeys if the deal goes wrong and you are left with banana peels rather than getting protection you would have got with proper legal advice.”
That leaves us with another problem with Airplane Repo China. It is a lot easier to repossess an aircraft in China. Even the Discovery Channel will struggle to make a nine to 12 month process watchable.