[18 December 2014 – Hong Kong] China Aircraft Leasing Group Holdings Limited (“CALC”, The “Group”, Stock Code: 1848.HK) has recently signed a memorandum of understanding with the Harbin Municipal Government to establish the China Aircraft Disassembly Centre (“CADC”). With the support of provincial and municipal governments, the investment in establishing CADC is a significant move for CALC to enhance its presence in the complete value chain of aircraft solutions industry and evolve into a one-stop, full life cycle aircraft solutions provider.
Capture the under discovered opportunity in the value chain to become a one-stop, full life cycle aircraft solutions provider
From aircraft leasing, aircraft sale and leaseback to aircraft disassembling services, CALC is committed to becoming a one-stop, full life cycle aircraft solutions provider by building a platform that covers all aircraft related services. The establishment of CADC in Harbin does not only open up new revenue sources, it also strengthens the relationship between the Group and its airline customers. In addition, it enhances customers’ loyalty and further reinforces the Group’s leading position in the aviation industry.
The rapid development of China’s aviation industry, together with the growing fleet size of airlines, the numbers of retiring old aircraft have been accelerating every year. In 2014, approximately 80 to 100 civil aircraft will retire in China due to aging and rising maintenance and repairing costs. Going forward, the number of retiring aircraft is expected to increase by 15% to 20% per annum. Currently, aircraft disassembling services in China remains underdeveloped; the Group has thus become the first-mover and taken the lead in establishing this important service sector in China’s aviation industry. With in-depth knowledge in the industry and technical expertise in aircraft structures, CALC is capable of building a professional team to cope with the growing market demand.
Open up new revenue stream and fortify relationships with customers
The Group will purchase retiring aircraft and lease them back to passenger airlines or cargo freight operators. Upon the expiry of the lease, the aircraft will be dismantled. This process will optimise the residual value of aged aircraft, encourage airlines to expand its fleet and upgrade fleet model; and most importantly, synthetically promote the growth of the Group’s aircraft leasing business.
Over years of collaboration, the Group has established strong strategic partnership with major Chinese airlines, which will bring unparalleled advantage for the Group to acquire aged aircraft. With sufficient supply of aged aircraft, the aircraft disassembling business may form a scalable operation in [a relatively short period of time] and bring ample return to the Group. Revenue will be generated through the sales of disassembled engines, APU, landing gears, other valuable parts and precious metals. The market price of each retired aircraft is approximately US$5 to 10 million; while a disassembled aircraft is expected to bring in revenue of approximately US$10 million to 15 million.
Execution plan
The initial investment on CADC is US$15 million and the total investment will amount to US$2 billion in phases. The investment will mainly be used in the purchase of land, professional dismantling equipment, construction of the disassembly plant, aircraft material maintenance and certification centre, temperature and humidity control warehouse, logistics and distribution centre, staff dormitory, parking apron, tow way and other infrastructures. CADC will mainly focus on the domestic market at the beginning stage, with a target to dismantle 10 aircraft per year. In 5 years, the production capacity will gradually ramp up to dismantling 50 aircraft per annum. While strengthening its position in the domestic market, the Group will also actively explore business opportunities in the overseas markets. Together with the existing aircraft leasing business, the Group aims to provide full-range aircraft solutions.
Dr. Mike POON, Chief Executive Officer and Executive Director of CALC, said, "CALC’s unique positioning and business model have been well recognised by the domestic aviation industry. The new aircraft disassembly business will generate synergy with our existing aircraft leasing business. Through a package deal model, we will dispose of aged aircraft for airlines whilst providing them with new aircraft leasing services. Leveraging on our connection with major domestic airlines in China, including but not limited to Air China, China Southern Airlines, China Eastern Airlines, Shenzhen Airlines, Shandong Airlines, Sichuan Airlines, Chengdu Airlines, Qingdao Airlines and Juneyao Airlines, the Group enjoys absolute advantage in obtaining retiring aircraft. We are confident in the prospects of the development of the Group and China’s aviation industry. With an aim to diversify revenue streams and maximise shareholders’ return, CALC will continue to explore business opportunities in Greater China and the overseas markets while continue to build the unique one-stop, full life cycle aircraft solutions platform.”
