Li Ka-shing’s Cheung Kong to spend USD1.89b on planes for leasing

Billionaire Li Ka-shing’s Cheung Kong Holdings

Hong Kong billionaire Li Ka-shing’s Cheung Kong Holdings Ltd. agreed to pay USD1.89 billion to buy 35 planes from companies including General Electric Co.’s aviation services unit to enter aircraft leasing.
Cheung Kong will also form a 60-40 venture with MC Aviation Partners Inc. that will buy an additional 15 planes for $733.5 million, according to the company’s filing to Hong Kong’s stock exchange Tuesday evening.
Li, Asia’s richest man, is entering the plane-leasing market as increasing urbanization and a growing middle class is fueling a surge in travel demand across the world’s most populous continent. Cheung Kong said in August it was seeking to buy planes from Terra Firma Capital Partners Ltd.’s Awas arm to quickly build a major presence in the business.
“The aircraft leasing business will generate long-term steady income for the group,” Cheung Kong said in Tuesday’s filing. The purchases “will constitute a meaningful platform to further develop the aircraft ownership and leasing business for the group.”
Cheung Kong is mainly a real estate investor and developer. Its unit Hutchison Whampoa Ltd. has worldwide operations ranging from port operations to retailing to energy to telecommunications.
The Hong Kong company said would pay $132 million for its stake in the venture with Japan’s MC Aviation.
Cheung Kong, through unit Accipiter Holdings Ltd., will buy 18 planes from units of GE Capital Aviation Services Ltd. for $714.8 million, according to the filing. The 11 Airbus Group NV A320-200s, five Boeing Co. 737-800s and two 737-900ERs with an average age of 3.1 years. Accipiter will buy an additional three 737-800s from GE affiliates for $101.2 million.
Cheung Kong agreed to buy 10 planes from Bank of China Ltd.’s BOC Aviation Pte. in two purchases, of $213.3 million and $278.7 million, and will pay $584.2 million to Jackson Square Aviation LLC for 14 planes, according to the filing.
The planes that will be purchased are currently leased to airlines for an average six to nine years.
Shares of Cheung Kong fell 8 percent to HK$134.40 as of 9:38 a.m yesterday in Hong Kong. The stock has gained 9.8 percent this year, compared with a 1.95 percent increase in the Hang Seng Index.
The number of passengers traveling in Asia is projected to expand an average 4.9 percent annually in the next 20 years through 2034, a rate rivaled only by the Middle East, according to an International Air Transport Association study last month. China is expected to be the largest driver, growing 5.6 percent a year, it said.
Cheung Kong is following other Asian companies, such as Malaysia’s AirAsia Bhd., in expanding into the leasing market. China’s Spring Airlines Co. said it aims to start the business in Shanghai’s free-trade zone and may receive approvals by the end of this year.
Cheung Kong said Aug. 4 that it had submitted a preliminary, non-binding proposal to buy planes from lessor Awas, without providing details. Awas plans to break up its fleet of about 280 planes and sell about 100 newer aircraft for as much as $5 billion, people with knowledge of the matter told Bloomberg News.
China Aircraft Leasing Group Holdings Ltd., the first Asian plane lessor to go public in July, said it plans to expand across Asia even as it relies on China for most of its business. The country has said it will encourage its lessors to look for opportunities overseas.
AVIC Capital Co. said in August that its financing arm, Aviation Industry Corp. of China, is in talks with “relevant parties” to buy Dublin-based aircraft-leasing firm Avolon Holdings Ltd.
Airlines globally will buy aircraft worth $4.4 trillion in the next two decades as more Indians and Chinese fly, Airbus said last year.
Asia will push commercial plane sales to $5.2 trillion over the next 20 years as China overtakes the U.S. as the world’s largest aviation market, Boeing said earlier this year.
Li has a net worth of $29.8 billion, according to the Bloomberg Billionaires Index. Joshua Fellman and Bonnie Cao, Bloomberg