Leveraged leasing, similar to syndicated loans, is a kind of financial leasing with tax incentives, mainly led by a leasing company as a backbone company to finance a super-large leasing project. First, set up an operating organization independent of the main body of the leasing company-set up a fund management company for this project to provide more than 20% of the total project amount, and the rest of the funds mainly come from absorbing idle hot money from banks and society, and use the leverage of "two treasures and eight treasures" to enjoy the low tax revenue of 100% to obtain huge funds for the leasing project. Other practices are basically the same as financial leasing, but the complexity of the contract increases because of its wide coverage. Because it can enjoy preferential tax, standardized operation, good comprehensive benefit, safe rent recovery and low cost, it is generally used for financial leasing of aircraft, ships, communication equipment and large complete sets of equipment.
The specific process is as follows:
Step 1: The enterprise applies for financial leasing to the China Banking Regulatory Commission (Ministry of Commerce) and fills in the project application form.
Step 2: The China Banking Regulatory Commission (Ministry of Commerce) investigates the credit standing, assets and liabilities, operating conditions, solvency and project feasibility of the enterprise according to the information provided by the enterprise.
Step 3: If the CBRC (Ministry of Commerce) considers it feasible after investigation, it shall submit its project data to the financial leasing company for review.
Step 4: If the financial leasing company requires the project to provide mortgage, pledge or performance guarantee, the enterprise shall provide a list of mortgage or pledge, a certificate of ownership or a certificate of the right to dispose of the mortgage or pledge, and reach a cooperation agreement with the guarantor on the issuance of performance guarantee.
Step 5: For the projects that have not passed the preliminary examination of the financial leasing company, the enterprise shall timely supplement relevant information according to the requirements of the financial leasing company. If the supplementary materials still cannot meet the requirements of the financial leasing company, the project will be cancelled and the project materials will be returned to the enterprise.
Step 6: If the financial leasing project is approved by the financial leasing company, the relevant parties shall sign a contract.
Step 7, go through the formalities of mortgage, pledge registration, freezing and payment stop.
Step 8: After the lessee pays the deposit, service fee, guarantee fee and equipment invoice, the financial leasing company starts to invest.
Step 9: China Banking Regulatory Commission (Ministry of Commerce) supervises the operation of the project and urges the lessee to pay the rent on schedule.
Step 10: At the end of the lease period, the lessee buys back at a low price.
Investment analysis of domestic aircraft financial leasing business
There are generally two forms of aviation leasing, namely, operating leasing and financing leasing.
Operating lease: the lessor owns the aircraft, and the lessee pays the rent on schedule in exchange for the right to use the aircraft under certain funds or security guarantees. The rent of this kind of lease is relatively high, and the lease period is relatively short, generally not exceeding a few years. Rent is generally paid monthly or quarterly. In addition, the daily operation, maintenance and insurance of the aircraft are also paid by the hirer and returned to the aircraft at the expiration of the lease.
This kind of lease is mainly used to meet the transportation needs temporarily, or the airlines gain experience in using a certain type of aircraft or equipment without experience. It is not the basic way for airlines to lease aircraft. For example, the traffic volume of Xinjiang Airlines in China has increased a lot in the peak season (summer and autumn), and it is necessary to rent planes from CIS countries in the peak season to alleviate the tight transportation situation.
Financing lease: This is the basic way for airlines to lease aircraft. Its characteristic is that the lessee and the supplier finance with the lessor, sign a long-term lease contract, and replace financing with long-term financing. The lessee selects the model and supplier, and determines the aircraft to be used through negotiation. The lessor pays for the plane and has the ownership. The aircraft is used by the lessee, and the lessor collects the rent, and is irresponsible for the risks in the inspection, delivery, future maintenance, use and operation of the aircraft. The lease period of aircraft is generally 10- 15 years, which is close to the service life of aircraft. After the expiration, the lessee can buy the plane or return it to the lessor. The transaction of financial leasing involves at least three parties and more than two contracts are signed. One of the two basic contracts is the purchase contract signed by the lessor and the supplier, and the other is the lease contract signed by the lessor and the lessee. In addition, the lessee shall have a corresponding supply agreement with the supplier.
The advantage of leasing operation to the lessee is that it can obtain the long-term use right of equipment without raising a lot of funds, so that it can adopt advanced models and improve market competitiveness. During the whole lease period, the rent is paid according to the contract, which avoids the risk of fund fluctuation. The lease term is longer than the financing term of the loan purchase machine. In addition, it also avoids keeping outdated equipment.
For the lessee, financial leasing also bears certain risks. The first is the risk of default by all parties. Because there are many participants and links in financial leasing, if one party breaches the contract and there are loopholes, it will cause certain disputes and problems. Secondly, the lessor and the lessee are in different countries, and political and diplomatic risks and events will make the lessee take risks. Financially speaking, if an airline leases more planes, it will make the asset-liability ratio too high and make the corporate reputation decline.
Weighing the above advantages and disadvantages, airlines should properly consider their own funds and decide how much charter rate to adopt according to their operating conditions. The high rent ratio reflects that enterprises have little self-owned funds and low solvency, which will reduce the reputation of enterprises and weaken their ability to resist risks. The high proportion of self-owned aircraft reflects that enterprises have invested a lot of money in this equipment, and the capital turnover cycle is long, which is not conducive to enterprise operation.
Although financing is the main way of international aviation leasing, domestic aviation leasing companies are not as good as international excellent leasing companies in financial capital and related industrial capital support, so they should be more flexible in capital operation.
BOC Aviation Leasing Company is a relatively successful aviation leasing company in China. Since the establishment of 1993, the company has maintained the profit record of 16 years. The secret of their success is flexible capital operation and good business model.
Domestic financial leasing institutions focus on the domestic market, which is only a supplement to the main business of banks, so the focus of domestic financial leasing is not only aircraft, but also machinery and equipment such as ships. From the perspective of market capacity, two different leasing companies have their own strengths. From the perspective of financial leasing market, the key to competition is who can get the best capital cost. From the perspective of operating lease, besides capital, there are assets with high cost, so the practitioners of domestic banks are very familiar with financial lease, but they will put forward higher requirements for aircraft procurement and sales. BOC Aviation Leasing has an experienced management team, which can provide comprehensive aircraft subletting, structural financing and technical management services in addition to aircraft leasing related services, which is beyond the reach of ordinary financial leasing companies.
BOC Aviation Leasing has always believed that one of its major advantages is leaseback after sale. The so-called leaseback after sale, also called leaseback after purchase, means that the leasing company immediately leases the plane back to the airline in the form of long-term lease, thus providing long-term financing for the airline and making its operation more flexible. When the market is depressed, leasing companies will do more sales and rent back, and when the market is good, they will sell planes. It is precisely because of the dynamic adjustment and counter-cyclical operation between these two business categories that BOC Aviation Leasing can basically maintain the steady growth of the company's profits no matter how the market changes.
Financial leasing companies mainly compete with traditional banking business and are the main source of increasing bank income. As an operating leasing company, it should be fully integrated into fleet operation and aircraft trading business, and consider the starting point of thinking and behavior from the perspective of investors. As an operating leasing company, the most critical factor is to buy aircraft when the price is favorable. For example, when the economic situation is bad, many airlines will be eager to sell their excess capacity, but they can't find a buyer. Taking advantage of their huge financial advantages, BOC Airlines can lease the aircraft at this time and sell it when the economy improves and the price of the aircraft rises, which can earn a considerable difference.
Based on the above analysis, good positioning and flexible capital operation are very important for the developing domestic aviation leasing industry. It is a good choice for domestic leasing companies to use the simple principle of buying at a low price and selling at a high price to take some counter-cyclical operations when the market is booming.