HNA Explores Options for Avolon Plane-Leasing Business

(Bloomberg) -- HNA Group Co., the Chinese conglomerate that's reversing a global acquisition spree, is examining options for its Avolon Holdings Ltd. aircraft-leasing business, according to people with knowledge of the matter.

The Chinese group has sounded out potential buyers for a stake in the business or some of Avolon's aircraft, said the people. Potential suitors that have held talks include companies controlled by the families of Hong Kong billionaires Li Ka-shing and Henry Cheng, they said, asking not to be identified. Discussions are at a preliminary stage and may not lead to a deal, the people said.

Potential investors have also been offered minority stakes in Avolon, the world's third-largest lessor, that could expand over time, said one of the people.

“Unequivocally, HNA Group's position is that it will not sell a controlling interest in Avolon. It is deemed to be a core strategic asset, and that situation has not changed,” Domhnal Slattery, Avolon's CEO, said during an earnings conference call Thursday.

If HNA were to reverse that position, Avolon would have the potential to be among its largest disposals, given the leasing company's book value of about $7.3 billion at the end of last year. The group, which in recent years emerged as one of China's most aggressive acquirers of foreign businesses -- including big stakes in Deutsche Bank AG and Hilton Worldwide Holdings Inc. -- has sold more than $17 billion in assets this year to reduce one of the country's biggest corporate debt piles.

Read more: HNA's other asset sales

CK Asset Holdings Ltd., which operates the Li family's aircraft-leasing business, couldn't be reached for comment. Representatives for HNA and NWS Holdings Ltd., which handles the Cheng family's plane-leasing operations, declined to comment.

HNA's Bohai Capital Holding Co. bought Dublin-based Avolon in 2016. The aircraft financier tripled in size after Avolon it bought CIT Group Inc.'s plane-leasing business for more than $10 billion in 2017. Since then, Avolon has been divesting non-core assets, including a portfolio of about 100 airplanes that it gained from CIT, Slattery told Bloomberg in an interview last month.

The lessor sold 41 aircraft in the second quarter, according to an earnings report Thursday. Avolon's fleet shrank 3 percent to 890 aircraft from a year earlier. The company also holds orders and commitments for 328 planes.

Bohai Capital's stock resumed trading on July 17, having been halted since January. It's fallen more than 30 percent since the restart.

Aircraft leasing has gained increasing popularity in recent years in Asia, particularly in China and Hong Kong. Fueling that interest is the travel boom in the region, which is bolstering demand for planes from airline companies, many of which prefer to rent rather than purchase to help cap costs.

Hong Kong has stood out after the city's Legislative Council last year passed bills that will reduce the effective tax rate on plane-leasing companies to less than 10 percent from more than 30 percent. That helped put Hong Kong in position to become the next aircraft leasing hub, competing with Singapore and Ireland.

NWS, an infrastructure company controlled by the Cheng family, recently announced the acquisition of Dublin-based Sky Leasing. In an interview with Bloomberg last month, NWS Executive Director Brian Cheng said aircraft leasing will be the growth driver for the firm in the next five years.

The stable nature of the business has also attracted the family of Hong Kong's richest man. CK Asset, which initially focused on property, branched out into aircraft leasing in late 2016. In its most recent annual report, CK Asset said it plans buy another 59 aircraft for about HK$12.9 billion ($1.6 billion).

To contact the reporters on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net;Prudence Ho in Hong Kong at pho83@bloomberg.net;Julie Johnsson in Chicago at jjohnsson@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net;Young-Sam Cho at ycho2@bloomberg.net