Bank of China Ltd (BOC), China's second-biggest bank, said it will buy all shares of Singapore Aircraft Leasing Enterprise for US$965 million, the first major acquisition made by a state-owned bank.

 

BOC will buy 100 percent of Asia's largest plane lessor from the existing shareholders and assume US$2.28 billion of debt, according to its press release. The price represents 1.8 times to the company's equity value of US$535 million as of September 30.

 

China's commercial airline fleet flew 133 million people, more than the population of Japan, in the first 10 months of this year and will probably more than triple in size to 3,900 planes in the next two decades, according to Boeing Co. Leasing aircraft lets airlines expand and replace aging planes quicker with less of their own money.

 

"In the long run, there must be some sort of aircraft leasing company to serve the country's demand," said Winson Fong, who helps manage about US$2.3 billion of assets at SG Asset Management in Singapore. "Aircraft leasing will grow along with the fleet expansion in China."

 

BOC said the acquisition is part of its strategy to diversify into non-interest income, and will provide a platform for it to expand into aircraft leasing. The lender will also get cross-selling opportunities with airline companies.

 

"BOC will leverage on its global client resources and institutional network in China and overseas to support Singapore Aircraft's global business development, and particularly in the Chinese aviation sector," the bank said.

 

The Chinese lender said it will appoint directors to the board of Singapore Aircraft, which will be run by the company's existing management based in Singapore. Robert Martin will remain the company's chief executive officer.

 

Singapore Aircraft said in September it wants to increase the number of planes it operates for airlines, earning management fees in addition to lease payments. The company manages 14 planes for third parties out of a fleet of 77, and has 28 planes on order. It also has an option to buy 20 additional aircraft, the statement said.

 

BOC wants to expand into plane leasing and has an agreement with Royal Bank of Scotland Plc, which holds about 4.4 percent of the Beijing-based bank, to develop aircraft finance.

 

(China Daily December 16, 2006)