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BOC Aviation considers buying narrow-body planes on demand

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BOC Aviation, Asia's biggest aircraft lessor, may buy more single-aisle planes as economic growth spurs travel demand.

[SINGAPORE] BOC Aviation, Asia's biggest aircraft lessor, may buy more single-aisle planes as economic growth spurs travel demand.

The company, owned by Bank of China, is deciding between Airbus Group SE's A320neo and Boeing Co's 737Max, managing director Robert Martin said in an interview in Singapore. The order won't be large and there is no timeline for the purchase, he said on Monday.

"We have some gaps in 2018 because it's when most of the new technology comes in, and we decided to wait,"Mr Martin said. "Will we top up? Yes, if the right opportunity comes and if the price is right. It's all down to the price." Growth in air travel, especially in Asia, is lifting orders for Boeing and Airbus, with China forecast to surpass the US as the largest plane market within 20 years. Economic growth is making air travel more affordable in China, prompting carriers such as Air China and China Southern Airlines to boost their fleets, while Mr Martin said aircraft demand also is increasing in countries such as Mexico and Japan.

Boeing estimates single-aisle jets will account for almost three-quarters of future demand in China. Low-cost carriers will account for as much as 30 percent of aircraft demand by 2034, up from eight per cent currently, the planemaker said last week.

BOC Aviation's first-half net income rose five per cent from a year earlier to $171 million and sales increased three per cent to US$535 million, the company said in a statement Monday. As of the end of June, it had 256 aircraft in its portfolio and 195 on order, with deliveries scheduled through 2021.

The lessor has placed all its planes with airlines this year, Martin said. For next year, all Airbus planes have been placed and BOC Aviation is in talks with airlines for a couple of Boeing planes.

China's "One Belt, One Road" project to develop ties along the land and maritime routes of the old Silk Road is expected to boost air traffic for passengers and trade, Mr Martin said.

Benefiting India India is one market that would benefit from China's plan if India takes steps to ease regulations in its aviation industry, Mr Martin said.

China could help in expanding India's infrastructure, while India could produce cheap goods for China, Mr Martin said. That "would be a phenomenal stimulus to the market in Asia" for passengers and cargo, in addition to generating more travel between the two countries, he said.

South-east Asian carriers probably will continue grappling with overcapacity in 2016 as they take delivery of planes, and as weak currencies in countries such as Malaysia and Indonesia undermine travel demand, Mr Martin said.

"Because of the currency issue, it's slowed some of the economies," Mr Martin said. "But that said, the rest of the world is growing at a pace that means any excess can be absorbed."

BOC Aviation had committed US$2.6 billion in revolving debt facilities at the end of June, and raised US$947 million in bond financing in the first half, Martin said. That will enable the lessor to take on more planes and place them with carriers that need additional capacity, he said.

BOC Aviation has received US$300 million in unsecured syndicated loans from 18 Japanese banks led by Development Bank of Japan, Mr Martin said. The company plans to gradually increase the portion of unsecured debt, which accounts for more than 40 per cent of its total, and will also tap global markets to raise funds, he said.

Standard & Poor's Ratings Services raised BOC Aviation's credit rating to A- from BBB in March.

"We found new banks coming to us," Mr Martin said. "People realize once you get to a certain scale, this actually is for creditors a very stable business. And that's what creditors like."