Chinese aircraft lessors are pressing ahead with their expansion plans for 2017, after dominating activity in the global market in 2016. Last year saw the acquisition of both Avolon, an Ireland-based aircraft leasing company, and CIT Group’s CIT Commercial Air, by Bohai Leasing Co. Ltd, a Chinese leasing and financial services company. Bank of China (BoC) Aviation and China Development Bank (CDB) Leasing also carried out Initial Public Offerings on the Hong Kong Stock Exchange.

The current focus of M&A activity involves the offer for sale of two leasing companies: AWAS, and the AirAsia unit Asia Aviation Capital Leasing. The AWAS deal is being handled by Goldman Sachs, while the sale of Asia Aviation Capital Leasing is being handled by RHB Investment Bank, Credit Suisse, and BNP Paribas. Chinese lessors are expected to feature prominently in the bidding processes for both.

The bigger of the two firms is AWAS, which is controlled by two funds run by UK private equity group Terra Firma, led by English financier and investor Guy Hands. Terra Firma Capital Partners II closed in February 2002, raising 2.1 billion euros. Terra Firma Capital Partners III reached financial close in May 2007, raising 5.4 billion euros. Another strategic shareholder in AWAS is Canada Pension Plan Investment Board.

Terra Firma originally acquired 75% of AWAS for US$2.5 billion in 2006. One year later it acquired the Pegasus leasing firm and integrated it into AWAS. The financial crisis then intervened, and the AWAS investment had lasted longer than is typical under private equity fund strategies, which often seeks an exit after around five years.

Terra Firma was never under pressure to sell, and so was able to take a patient approach, and has moved into an environment where leasing platforms and aircraft have become highly sought after assets. Early in 2016, Terra Firma was reported to have rejected a bid from Bohai Leasing. A formal auction process was eventually initiated in late 2016, run by Goldman Sachs.

AWAS has a well-established customer base of top carriers, experienced staff, and a young fleet of around 200 planes, including the latest Airbus A350 widebodies.

The bidders for AWAS are likely to include some of the same names as the bidders for the CIT aircraft leasing unit, which included ICBC Leasing, Bohai Leasing, Ping An Insurance, plus Japanese companies Century Tokyo Leasing and Orix Corp.

Another bidder was Accipiter, which teamed up with Apollo Aviation Capital for its bid. Accipiter is the aircraft leasing unit of CK Hutchison Holdings, one of the listed companies in Li Ka-shing's business empire. Accipiter is currently in the process of being sold by CK Hutchison to Cheung Kong Property Holdings, Li's other listed entity, which is seeking to diversify its revenue sources which are heavily concentrated in property.

Bohai Leasing came out as winner with a US$10 billion bid for CIT, made via its Avolon leasing platform. Avolon was itself acquired by Bohai Leasing in 2015, with shareholders approving the sale in October 2015, and the deal closing in January 2016.

Morgan Stanley and UBS provided US$8.5 billion worth of acquisition debt facilities for the CIT deal. In November, US$2.975 billion of this was syndicated with Barclays, JP Morgan Chase, BNP Paribas, Credit Agricole CIB, and SunTrust Bank.

Further syndication is now underway. In January, Avolon received Double B credit ratings from Fitch, Moody's, and S&P. In addition to loan syndication, an Avolon subsidiary is also about to launch a US$3 billion offering of senior unsecured notes.

Bohai Leasing is listed on the Shenzhen Stock Exchange. It is a majority controlled subsidiary of HNA Group, which is headed by billionaire Chen Feng. As of September 2016, Avolon had a fleet of owned, managed, and committed aircraft, valued at US$43 billion.

This puts it in third place on the global lessors league table, behind GE Capital Aviation Services (Gecas), and AerCap, which is based in Dublin and Amsterdam. Many analysts expect that Bohai Leasing via Avolon will continue on the acquisition trail, and overtake Gecas and AerCap in 2017 or 2018, to claim the top spot on the global aircraft lessors rankings. This could be done by more leasing company acquisitions, by large aircraft portfolio acquisitions, or by placing orders directly with Airbus and Boeing.

Ping An Insurance is also seen as possible bidder for AWAS or the AirAsia platform. Ping An has insurance, banking, and investment arms, and is China's second largest insurance group, both in the life and property & casualty segments. Its aircraft assets are held by Ping An Financial Leasing.

Ping An already has a fleet of Boeing and Airbus aircraft. At the Paris Air Show in June 2015, Ping An International Financial Leasing signed an agreement with the Commercial Aircraft Corporation of China (Comac) to buy fifty C919s, which are currently in development.

The other leasing platform on the block, Asia Aviation Capital Limited, is part of the AirAsia group which is led by Malaysian entrepreneur Tony Fernandes.

In December, Reuters reported that AirAsia has received around a dozen bids for its leasing arm, mostly from China. It reported two of the bidders to be China Merchants Bank and Ping An. AirAsia values Asia Aviation Capital at around US$1 billion.

One of its attractions is heavily discounted aircraft from huge AirAsia orders with Airbus, some of which have been allocated to the leasing arm. The company has 575 A320s in service or on order, with the most recent order dating back to July 2016 when it signed up for 100 A321neos.

Another potential bidder could be China Aircraft Leasing Group (CALC), which listed on the Hong Kong Stock Exchange in July 2014. The company has said it is looking for opportunities overseas, as it is currently heavily focused on China. Meanwhile both China Construction Bank, and Bank of Communications are growing their aircraft leasing arms. China Development Bank subsidiary, CDB Aviation Lease Finance, has ambitious global growth plans.

Regardless of whether Chinese companies come out as winners in the bidding for AWAS and the AirAsia platform, they are still expected to grow rapidly in 2017, either buying aircraft portfolios from other lessors, or placing orders direct with Boeing and Airbus.