By Chan Quan Min
Tony Fernandes
A recent plan by AirAsia to grow and spin-off its aircraft leasing business will see charismatic Anthony “Tony” Fernandes jostle with Hong Kong tycoon Li Ka-Shing in a lucrative but crowded market.
Li, a Chinese state-owned firm and Japanese investors were named as interested parties with an appetite for billions of dollars in aircraft assets, according to Wall Street Journal report out yesterday.
The news report pointed out that Li-controlled Cheung Kong (Holdings) Ltd, a real-estate firm, last week struck a deal to buy 60 passenger jets for more than US$2.5 billion (RM8.4 billion).
Li had earlier made several attempts to get into the aircraft leasing business and is currently bidding for aircraft assets belonging to AWAS, the world’s fifth-biggest aircraft lessor by fleet size.
According to the Wall Street Journal, Li is not the only bidder, joining others such as Orix Corp, a Japanese leasing and financial services firm; Hong Kong Aviation Capital, a lessor backed by China’s HNA aviation group; and Macquarie Group of Australia.
Any potential deal could be worth in the region of US$5 billion, according to information obtained by the newspaper.
The return on investment from aircraft leasing is estimated at 9% per annum over a two-decade life of an aircraft, more than that of running an actual airline.
“It’s the leasing companies that have made money in the last 10 years, not the airlines,” Norwegian Air Shuttle CEO Bjorn Kjos told Reuters in a recent interview. “They have a fantastic bottom line. They earn all the money the airlines should have earned.”
Only just getting into the aircraft leasing game is homegrown AirAsia, having announced in September plans to divert some of its future deliveries into an aircraft leasing business.
The leasing arm would help AirAsia soak up about nine aircraft earmarked for sale but without buyers and if listed could be worth around US$1 billion in market capitalisation, the budget airline claimed.
More known for aggressive expansion than shying away from competition, AirAsia took a surprising decision to cut back on expansion this year in key markets.
Only one plane has been added to the budget airline’s main Kuala Lumpur hub this year and scores of orders for the next few years have had their deliveries pushed back.
Aviation analysts say AirAsia is making a meaningful attempt to protect profit margins after last year’s price war with Malaysia Airlines and new entrant Malindo Air.
AirAsia is the only Malaysian airline reporting profits. Malaysia Airlines has been unprofitable or only just breaking even for over five years while Malindo is likely to be loss-making in its early years of operation. The budget airline typically reports profit margins approaching 30%, making it quite possibly the world’s most profitable airline.
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