China: China Aviation Finance Market On the Rise – A Look Back at 2012

Last Updated: 11 January 2013
Article by Wang Ling and Zhou Jie

2012 has witnessed another year of growing demand and strong deal flows in the Chinese aviation market. By year end, more than 350 new aircraft will have been delivered for operation in China including commercial airplanes and business jets. Active participation of Chinese banks and leasing companies (through both onshore and offshore entities) along with innovative transaction structures developed for the Chinese market by market participants and their counsels have contributed to the robust growth.

US Export-Import Bank Guaranteed Structure

For the first time in Chinese aviation finance history, a Chinese airline is able to leverage over the credit support of the Export-Import Bank of the United States ("US Ex-Im Bank") without a guarantee from a Chinese bank or a sovereign undertaking from the Chinese government. The specific transactions are 2011-2012 deals in which Air China leased the Boeing 777-300ER aircraft from a Delaware trust entity financed through credit facilities and issuance of USD bonds as guaranteed by the US Ex-Im Bank.

These are the first deals in which the US Ex-Im Bank has financed Chinese airlines after the Cape Town Convention ("Convention") took effect for China, where the US Ex-Im Bank was taking the aircraft asset risk rather than country risk of China. The Convention has played an important part for the US Ex-Im Bank to change its risk assessment, because it establishes a trans-jurisdictional regime which would recognize the "international interest" of a creditor (for instance, lessor and mortgagee) over the aircraft object and provides speedy remedies for such interests (subject to the reservations of the relevant contracting state).

From the perspective of PRC law counseling, the structural complexity of the transactions requires in-depth understanding of many elements, including the Convention, its implementation in China and interplay with Chinese domestic laws, the State Administration of Foreign Exchange (SAFE, the Chinese authority in charge of foreign exchange registration), the Civil Aviation Administration of China (CAAC, the Chinese aviation authority in charge of aircraft right registration and the entry point in connection with the registration of International Interests under the Convention), tax issues, and finally customs procedures. A guide through this regulatory maze is essential to achieve successful closings.

With delivery of the last aircraft in the fourth quarter of 2012, the new US Ex-Im Bank structure has become a transaction type of its kind for PRC airlines (particularly the three large carriers) in acquiring wide-bodied Boeing aircraft.

Bonded Zone Special Purpose Vehicle Structure

Bonded zones have become increasingly important for the aviation finance market, especially Chinese banks and leasing companies, ever since the China Banking Regulatory Commission (CBRC, the regulatory authority that supervises the business and operation of banking institutions in China including financial leasing companies) and the local customs authorities lifted the policy to allow leasing companies to hold aircraft title and lease aircraft through special purpose vehicles ("SPV") in the bonded zones. Statistics shows that in Dongjiang (a bonded zone in Tianjin) alone, over 150 SPVs have been set up to operate aircraft leasing businesses by the first quarter of 2012. Such SPVs channel onshore/offshore USD funds to the aircraft manufacturers and in turn the cash flows from airlines to the onshore/offshore lenders/investors.

As local PRC governments promote new tax policies to boost development of the leasing industry, it is likely that bonded zones will become a central area for Chinese lessors (and probably foreign invested lessors) to book more aircraft financing deals. That said, tax incentives are only one aspect. Issues concerning foreign exchange restrictions, security interests, bankruptcy remoteness, marketability of transaction documents (PRC law versus the law of other jurisdictions) all need to be considered to avoid surprises.

Ongoing Tax Reforms in the PRC

Tax policy changes affect the funding cost for the PRC airlines. Due to an ongoing tax pilot scheme to convert cross-border-lease-related business taxes to Value Added Tax ("VAT"), a program that is expanding to many regions of China, VAT will be levied on the rental payment to offshore lessors made by nearly all major airlines at the rate of 17% by way of withholding. Though the nominal tax rate has increased, effectively the airlines would be able to benefit from the reform by setting off the lease VAT against other VAT.

According to estimates by aircraft manufacturers, the China market can expect about 5,000 new aircraft (at a value of about USD 600 billion) to be delivered over the next two decades. There would be more airplanes on order for delivery to China and more transactions coming through. In such a growing market and with an evolving regulatory landscape, the financing transactions will likely be structured in ways that require both international and local expertise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions