Minsheng Financial Leasing Corporation: Asian Business Jet Financier 2012

[nonmember]Minsheng Financial Leasing was awarded Asian Business Jet Financier 2012 by Corporate Jet Investor a specialist international website and event organiser. The awards are chosen by a panel of finance specialists at banks and pre-owned aircraft brokerages.::join::[/nonmember][ismember]

Many may have heard the name Minsheng Financial Leasing only for the first time at the 2011 NBAA Convention in Las Vegas when it placed a firm order for 13 Legacy 650s with Embraer and signed a memorandum of understanding for 10 Falcon 7X aircraft and 10 Falcon 2000S aircraft.

But anyone involved in business aviation in China already knew the company well. 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 is still under 200 aircraft.

Bank-owned leasing companies in China are relatively new — Minsheng was among the first five to be granted a license by the China Banking Regulatory Commission in 2008 —  but the sector has grown quickly. Most leasing companies started by focusing on big-ticket assets such as ships, construction equipment, real estate and aircraft for airlines. Minsheng is very active in shipping leasing, but in aviation it has a unique focus on corporate aviation. Its competitors – like ICBC Leasing — started out in commercial aircraft finance and then moved into business jets. Minsheng is wholly focused on general aviation and does not engage in commercial aircraft leasing.

This reflects its parent’s approach to business. Minsheng Bank is China’s ninth largest bank and the largest financial institution that is mainly privately owned (although the state is a significant shareholder). Because of this ownership it focuses on loans to private companies and entrepreneurs – rather than fighting to lend to large state enterprises as China’s policy banks do.

Minsheng started looking at business jets in 2009. It felt there was an opportunity to help the bank’s private banking clients by advising them as well as providing finance and operating leases.

The bank acquired a Gulfstream G450 for its own use in 2010 which it imported 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). This was the first business jet to be owned this way. The creation of the special purpose vehicle is significant as it allows the bank to defer import duty and VAT – up to 22.85% of the aircraft’s value – over the term of the lease.

Having successfully imported its own aircraft Minsheng quickly placed speculative orders with Gulfstream, Hawker Beechcraft and Dassault. These speculative orders set it apart from other business jet financiers. Although it is common strategy for commercial aircraft leasing companies, few business jet financiers are prepared to take the risk of owning an aircraft without a customer. However even manufacturers say it is not always clear how many of the orders it has placed have firm customers (and it is hard to know as Minsheng Financial Leasing needs to import the aircraft in order to defer duty). Minseng initially ordered 18 aircraft and all were placed with owners.

Minsheng Financial Leasing says this is just the start. It told Corporate Jet Investor that by the end of 2012 it will have ordered 130 aircraft worth $1.5 billion as well as between 15 and 20 helicopters.

Although Minsheng is positioned to take advantage of the growth of China’s business jet market, the scale of its ambitions presents a significant challenge to the bank. It will have the equivalent of half of China’s total mainland business jet fleet as a backlog. Simply importing aircraft into China, where there is limited dedicated private aviation infrastructure and a shortage of pilots, is not easy. Also in common with all Chinese institutions, Minsheng is subject to foreign exchange restrictions.

If it can manage to take delivery of all of its orders, Minsheng will have quickly become one of the world’s leading business jet and helicopter financiers.

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