Aircraft Leasing In Asia: A Tale Of Three Cities

Asia Pacific is gaining prominence in global aviation. Here's what three major hubs - Hong Kong, Labuan and Singapore can offer to lessors.

Amid the gloomy economic outlook on the collapse of oil prices, the global aviation industry is bucking the trend. Over the next two decades, world passenger traffic is expected to grow 4.8% annually. Boeing is forecasting more than 39,600 new aircraft valued at US$5.9trillion will be required to meet growing demand. Airbus is also forecasting the growth in passenger traffic to be at an average annual rate of 4.5%, with passengers to more than double from today's 2.9 billion to 6.7 billion in 2032.

Total air traffic for the Asia Pacific region is predicted to grow at an average of 6%. By 2035, passenger traffic throughout Asia will constitute 48.7% of global passenger air traffic, and an estimated 15,130 aircrafts valued at US$2.35 trillion will be needed to meet this demand. As a result, the number of aircraft in Asia will triple from 6,350 in 2015 to 16,970 by 2035. This represents approximately 38% of all new aircrafts being delivered to airlines that will be based in the region. By 2035, Asia will lead the world in air traffic overtaking Europe and North America.

Aircraft leasing

In order to meet this rapidly growing demand for aircraft, there will be a significant need for aircraft leasing, financing and investment. Among the various types of aircraft financing, lease financing has grown substantially over the years. Currently approximately 35% of the global air fleet are financed with leases, compared to less than 1% 40 years ago.

Such an increase in aircraft demand and reliance on lease financing has presented an attractive opportunity for many aircraft lessors to consider using aerospace and leasing hubs in Asia Pacific.

Let's take a look at the three hubs of Hong Kong, Singapore and Labuan.

Hong Kong

Hong Kong holds the prominent position of international financial, trading and transportation centre, with a well-developed legal system. With its unique relationship with China, Hong Kong is well positioned for aircraft leasing companies to set up operations.

Currently a Hong Kong-based aircraft lessor is generally taxed on any lease rentals derived from the lease of aircraft entered into. The lessor is not entitled to claim tax depreciation on the cost of the aircraft, if it is leased to non-Hong Kong-based airlines. Therefore the Hong Kong lessor is taxed on its gross rentals rather than profits...