Geopolitical risk forces aircraft leasing companies to rethink exposure to China

Global aircraft leasing companies are reassessing their risk appetite for China amid heightened tensions with the US and in the wake of big losses following the grounding of planes in sanctions-hit Russia. Some international lessors have begun to reduce their exposure to the country, industry executives and analysts said. Friction between the US and China, coupled with uncertainty over war risks surrounding Taiwan, were adding to wider concerns over geopolitical risk, they added. China is the world’s single largest market for airline lessors, according to aviation consultancy Cirium, with almost 20% of their global portfolio leased to operators within the country, and it is forecast to remain a critical market for the aviation industry. But western lessors “may be at the start of a trend to de-risk” from China, said Eddy Pieniazek, head of advisory at aviation consultancy Ishka. “The major risk is about whether there would be war in [the] coming few years” across the Taiwan Strait, which could put many aircraft assets at risk, said an executive from a major aviation leasing company. “If you look at Russia, the aircraft got detained in Russia . . . that could also happen in China if the same sanctions [are] imposed on China.” Hundreds of planes owned by western aircraft leasing companies were stranded in Russia after its invasion of Ukraine in 2022. Many lessors are still embroiled in legal disputes with insurers over billions of dollars of claims. Aircraft leasing companies’ experience in Russia “probably alerted some lessors to review or reconsider their exposure concentrations”, including that of China, Pieniazek added. Los Angeles-based Air Lease Corporation, one of the world’s biggest aircraft lessors, owning about 448 planes and with a fleet net book value of $25.6b, said it has over the past five years reduced the share of its portfolio in China from about 20% to about 7% as of September this year.<br/>