6 Chinese lessors with narrowbody freighter ambitions

Seven airlines based in mainland China operate sixty-six 737 Classic freighters that comprise the backbone of the country’s domestic airfreight express fleet. In the coming years, primarily in response to surging e-commerce demand, the narrowbody freighter fleets of China-based carriers are expected to expand rapidly, with new aircraft types. As in most parts of the world, the days of Chinese carriers adding 737 Classic freighters are numbered, primarily due to the limited availability of suitable conversion feedstock. Many carriers are already looking ahead to the next generation of narrowbody freighter conversions, which includes 737-700s and -800s, along with A320/21 family aircraft.

But the aircraft types are not the only expected change with this next generation of narrowbody freighter conversions. Higher acquisition costs for NG freighters (at least in the near-term) combined with bullish forecasts for the China-based narrowbody freighter fleet could alter the acquisition dynamics of the new freighters.

Most mid-life 737-300s and -400s previously held in the portfolios of China-based lessors were traded away following retirement from passenger service. It then became the responsibility of an airline, or a more specialized leasing company to handle conversion of these aircraft into freighter configuration. Cargo Facts believes that leasing companies that have never before considered freighter conversions for their ageing passenger fleet will do so with the new freighters. Today we look at 6 lessors based in Mainland China that are likely to consider increased participation in the narrowbody freighter business based their existing narrowbody aircraft portfolios, and previous experience with freighters.

For now, we exclude lessors A320/21 family freighters because 100% of all narrowbody freighters currently in service with China-based carriers are Boeing aircraft. Additionally, 737 NG conversions will be re-delivered to Chinese carriers well in advance of their Airbus counterparts, as early as this year. (Note that Bedek has already converted, certified and redelivered three 737-700BDSFs to Seattle-based Alaska Airlines).

Of the 35 Lessors headquartered in mainland China for which we have data, 14 have 737 NGs in their portfolios, many of which are leased to the 39 passenger and combination carriers in China operating 737 NGs. One notable exclusion from these figures are the direct leasing subsidiaries of major carriers, for which we do not have comprehensive portfolio data, such as China Southern International Finance Leasing. Other exceptions include the leasing affiliates of Chinese banks with aircraft leasing entities based outside of China, such as BOC Aviation, which is headquartered in Singapore.

The chart at right shows the fourteen China-based lessors with portfolios containing 737 NGs. But will any of these lessors choose to have aircraft from their own portfolios freighter-converted? We think so.

Top possibilities include:

1. AVIC International Leasing: The Beijing-based, state-owned leasing affiliate of the Aviation Industry Corporation of China. Almost inevitably, AVIC International Leasing will lease the future freighter variant of its MA-60 aircraft, much like the 19 passenger variants the company currently leases to Tianjin-based JoyAir. AVIC already leases a 747-200F to Wuhan-based Uni-top Airlines, and nearly 30% of AVIC International Leasing’s portfolio (18 units) is comprised of 737 NGs.
2. ICBC Financial Leasing: The Beijing-based arm of ICBC Bank is no stranger to the freighter leasing operation, and already leases three 747-400BDSFs to Suparna Airlines. ICBC also has the largest portfolio of 737-800s of any lessor in China with eighty-two 737-800s.
3. Shanghai-based Bank of Communications Financial Leasing Co. Ltd (BoCom Leasing) is one of the few lessors based in mainland China that is already active in the narrowbody freighter business. BoCom leases three 737-300Fs to Suparna Airlines and also has a 777F on-lease to China Cargo Airlines. The lessor has fifty-one 737 NGs in its portfolio.
4. Beijing-based China Construction Bank Financial has long leased four 777Fs to China Cargo Airlines. Additionally, the lessor has a modest portfolio which includes eighteen 737-800s.
5. Shenzhen based China Development Bank (CDB) Leasing maintains a sizable portfolio of narrowbody passenger jets, including sixty-three 737-800s. The lessor also has exposure to the air cargo industry through two 747-400Fs leased to Turkey-based myCargo Airlines (on ACMI lease to Saudia).
6. As the leasing affiliate of Guangzhou-based China Southern Airlines, China Southern International Leasing Co., Ltd, could deepen its involvement with both freighter conversions and the subsequent leasing of freighter aircraft. China Southern’s fleet of 154 active 737-800s is expected to be a major source for conversion feedstock. Additionally, China Southern and Boeing recently agreed to establish a 737-800BCF conversion line at Guangzhou Aircraft Maintenance Engineering Co, Ltd (GAMECO), a 50/50 joint-venture between China Southern and Hong Kong-based Hutchison Whampoa. Although China Southern has no plans to operate narrowbody freighters, the company and its affiliates could incorporate CSN International Leasing for a vertically-integrated operation that includes conversion, and leasing of freighter aircraft.

Those interested in learning more about the narrowbody freighter conversion market are invited to join us at the Mandarin Oriental Pudong, 23-25 April in Shanghai for Cargo Facts Asia 2018. For more information, or to register, visit www.cargofactsasia.com