Global insight

Hong Kong poised to be new aircraft leasing hub

Hong Kong poised to be new aircraft leasing hub

PROPOSED taxation changes in Hong Kong may give Asia a new lease of life when it comes to aircraft acquisition financing.

With one-third of all aircraft acquisitions currently financed using lease mechanisms, airlines have largely been dependent on the USA and Ireland for such deals – although in recent years there has been substantial aircraft leasing activity in Singapore, which also offers a similarly favourable tax regime.

Reports suggest this situation could be poised to change, writes Thelma Etim.

CY Leung, chief executive of the Hong Kong Special Administrative Region of China, is proposing changes to taxation that could transform the aviation leasing industry in the territory, reveals global consultancy PricewaterhouseCoopers (PwC).

Currently, the main obstacle for a Hong Kong-based company leasing out an aircraft is that it is taxed on gross rental income rather than profits.

In Singapore and Ireland, for example, the aircraft lessor can not only claim for tax depreciation, but is also taxed at a more favourable rate, says PwC.

If a more competitive taxation regime is approved, Hong Kong could rapidly become a highly viable base for aviation leasing operations serving China and markets worldwide, it suggests.

Simon Cheng, capital markets and accounting advisory partner at PwC Hong Kong, notes financial services and logistics are already two key industries in Hong Kong, so it is well placed to develop aviation leasing. “Building on its special status within China, it could become the dominant industry hub in Asia,” he predicts.

Clarence Leung, asset finance and leasing director at PwC Hong Kong, notes that China’s airlines are projected to need 6,000 new ‘planes over the next 20 years, worth about US$780bn. “A substantial proportion of those will be acquired through leases,” he says.

“Globally, about a third of aircraft are financed this way – up from less than one per cent 40 years ago,” he adds.

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