Minsheng Financial Leasing: One of the world’s biggest buyers of business jets
Minsheng is not only the largest financier of business jets in China, but one of the largest in the world.
With a fleet of almost 60 aircraft on lease to customers and 70 more on order, China’s Minsheng Financial Leasing should be as well known in the business jet industry as NetJets, Flight Options or VistaJet. But this is just the start. If you do not know Minsheng yet; you soon will.
As well as being the largest financier of business jets in China – having financed an astonishing 30% of the mainland fleet – Minsheng Financial Leasing has bought an aircraft operator (CITIC General Aviation which is now renamed Minsheng International Jet) and is planning to launch a fractional operator. It has also bought land to build a new business jet airport near Beijing. By the end of 2013 it aims to have financed 100 jets in China. It is worth remembering that, according to Asian Sky Group, the total mainland fleet was 193 aircraft at the end of 2012.
“We do not just want to be a financier,” says Zhang Bo, president of Minsheng Financial Leasing’s business aircraft team. “We want to offer a wide range of services from aircraft model selection, contract negotiation, finance and tax structuring, aircraft importation, aircraft operations, flight hour swapping right to residual value management.”
He adds: “Finance will still continue to be an important part of what we do but we will be offering a broader range of services going forward. The is no one solution for the industry”
There really is no similar company – active across all aspects of business aviation – anywhere in the world. Few financial institutions finance as many large value business jets or are prepared to place speculative orders. None have fractional subsidiaries or own airports.
Minsheng Financial Leasing’s speculative orders set it apart from most business jet financiers. (The one exception is rival Chinese lessor CDB Leasing which ordered five Global 6000 jets in December 2012.) Although speculative orders are common for commercial aircraft leasing companies, few business jet financiers are prepared to take the risk of buying aircraft direct from manufacturers. This is partly because speculative business jet orders have not always worked in the past.
The last non-Chinese financial institution to place an order for business jets was GATX which formed a joint venture – Gulfstream GATX Leasing – with Gulfstream in 1998. GATX owned 85% of the new leasing company with Gulfstream owning the rest. The company offered short term leases of GIV-SPs, GVs and G550s (then known as GV-SPs).
Gulfstream GATX Leasing ordered six aircraft, worth $200 million at list prices, in 1998. It took delivery of the first aircraft in 2000 and went on to order 10 aircraft. When demand for business jets fell in 2001 – and after GATX had suffered losses in a commercial aircraft joint venture with Swissair which collapsed at the same time – Gulfstream GATX was closed down and the aircraft were sold.
Minsheng says the risks with its orders are different to those taken by GATX. First, it typically has a list of interested customers before placing orders. It can do this because of the strength of Minsheng Private Bank. Second, so far, it only offers finance leases with relatively conservative loan-to-values (so buyers have equity invested) these fully amortise in five years. Because the bank imports the aircraft through into a domestic special purpose vehicle in Tianjin Dongjiang Port Tax Free Zone (Tianjin Port Zone Investment is a co-owner of Minsheng Financial Leasing along with Minsheng Bank) it also holds title to the aircraft. The reason it uses a Tinajin special purpose company is because it allows Minsheng to defer import duty and VAT – up to 22.85% of the aircraft’s value – over the term of the lease.
Minseng initially ordered 18 aircraft and all were placed with owners. By the end of 2011, Minsheng had placed orders for 87 aircraft worth over $1.3 billion and taken delivery of 32 business jets – an astonishing number at a time when the mainland fleet was just 138 aircraft. But this is just the start.
Operating aircraft and airports
In April 2013, the company hired Chris Buchholz, the former CEO of Hongkong Jet and MetroJet as its chief representative in Hong Kong. A former Goldman Sachs banker, who is also fluent in Mandarin, Bucholz brings both operator and international finance experience.
This operator experience is useful as at the end of 2012, Minsheng acquired acquired CITIC Off-shore a small aircraft operating company with four jets. It is now offering aircraft management to customers as well as finance.
Minsheng says that it is not expecting customers with aircraft at other operators to move them. “We want to offer choice and accept that one solution is not right for everyone,” says Zhang.
It also aims to start building the airport in September 2013. Zhang says they have acquired the land in Hebei Provence, near Beijing and that it wants it to be a dedicated business and general aviation airport.
Perhaps the company’s most ambitious challenge is the planned launch of a fractional operator.
Because NetJets worked hard with the China’s aviation regulator the CAAC in the late 1999s, the regulatory framework is in place, but even NetJets has chosen to launch as a manager in China rather than as a fractional operator. Minsheng believes there is strong demand for this.
“Finance will still be an important part of what we do but we are also going to offer fractional ownership and block charter to individuals that do not want to own whole aircraft,” says Zhang.
Minsheng is planning to place new orders for its fractional business. It will use Minsheng International Jet operator’s certificate.
The first five years
Minsheng Financial Leasing has accomplished a lot for a company that is just five years old. It was among the first five banks to be granted a license by the China Banking Regulatory Commission in 2008. Since then the market has grown quickly and there are now over 30 approved lessors.
Its competitors – like CDB Leasing and ICBC Leasing – started out in commercial aircraft finance and then moved into business jets. Minsheng is only now looking at commercial aircraft having hired Johnny Lau, the former CEO of Spring Airlines and former head of aviation at ICBC Leasing, in June.
Because it places orders it has extremely strong relationships with manufacturers. In March it organised an event with Gulfstream where Minsheng’s customers could view the full range of the manufacturer’s aircraft in one place.
One of the biggest challenges that Minsheng faces is sourcing dollars. China restricts foreign currency transactions and as aircraft are bought in dollars this can delay deals. The leasing company has just completed its first transaction borrowing from a US bank and is keen to work with other banks. It is also hoping to use US Ex-Im bank guarantees.
“Minsheng is definitely ambitious but it is does seem to know every rich person in China,” says on manufacturer based in Beijing. “It is probably the only company that could attempt to do this.”
With more orders to come – particularly for its planned fractional fleet- you will be hearing the name Minsheng Financial Leasing Company a lot more in the next few years.