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Wan Xiaofang, President of Minsheng Financial Leasing: the opportunities and challenges of corporate jet leasing
On May 30th, the 10th China International Private Equity Forum themed “new normal, new opportunities, new engine, and new initiatives” was held in Tianjin, which aims to promoting the "funds-financing, intelligence-financing, network-financial, integration" among the finance, science & technology and industry. Wan Xiaofang, President of Minsheng Financial Leasing attended and delivered a keynote speech of "the opportunities and challenges of corporate jet leasing". She comprehensively reviewed the aviation leasing development course of Minsheng Financial Leasing, and on this basis, together with the guests shared the opportunities and challenges for the business aviation leasing.
Distinguished leaders, guests and friends:
Good afternoon！I’m pleased on behalf of Minsheng Financial Leasing to attend the "Financial Leasing Sub-forum of Private Equity Forum", together with all new and old friends to exchange experience and commonly discuss the future in Tianjin – a city full of opportunities for the financial leasing industry in China.
We know that the aviation industry is increasingly becoming a global industry with rapid growth. In comparison to the purchase, the global airlines tend to lease aircrafts. In the past 20 years, aircraft leasing business doubled its proportion to 40% approximately in the whole aircraft market according to the data from Ascend China – a global professional aviation advisory institution. It is expected that the proportion will be up to 50% in 2020. Facing the leasing market with huge potential, the capitals from all sectors scramble into the market. The jumbo investors with unusually sensitive business sense, such as Li Ka-shing and Warren Buffett etc, have successively entered the aircraft leasing field in recent years. It can be predicted that the aviation leasing industry will have an unusually broad prospects.
As one of the first-established financial leasing companies in China, Minsheng Financial Leasing always views the jet leasing business as one of its most important strategic sectors. In the early stage of development, the aircraft leasing market appears competitive situation with outstanding characteristics that the foreign leasing companies monopolize the leasing of civil aircrafts relying on their mature business modes and low-cost funds. Faced with this unfavorable situation, we uphold the operating principles of professional development and differentiated competition, and regard the corporate jet leasing as a breakthrough to enter the aircraft leasing market, firstly opening the corporate jet leasing business in china.
As early as in 2010, we pioneered the leasing industry in China, and established the first national financial leasing project company in Tianjin Dongjiang Bonded Port Area to develop corporate jet leasing business. Up to now, we have owned 155 corporate jets. And our company becomes the largest one in the corporate jet leasing field in Asia, and can be said to be the leader of Asian business aviation industry. At present, we have also been among the highest in the world.
According to the outlook report released by announced Embraer, the demand of global corporate jet market will reach 9100 jets in the next 10 years, with total transaction amount up to 259 billion US dollar. China is considered as the corporate jet market with the most potential. With the development in the past years, we witnessed the ups and downs of corporate jet leasing market in China. Here, I hope together with you to share the views of Minsheng Financial Leasing on the development situation of corporate jet market, our experience in the corporate jet leasing field, as well as policy recommendations.
With the cultivation in the past years, It should say that at present the corporate jet leasing market environment, policy environment and trading environment in China have gradually entered the right track, and now is ushering in a new round of development opportunities.
First, from the perspective of market environment, social awareness of corporate jet has gradually returned to the origin:
Compared with the purchase and consumption of jets as the mark of luxury and wealth a few years ago, now high-end business people gradually accept the business aviation essence of corporate jets, and more deeply experience the characteristics in the convenient and efficient aspects of corporate jets. In the international exchanges, it is the reflection of enterprise strength and good operating performance to travel by taking corporate jet, which plays the immeasurable role in the aspect of creating the enterprise high-end brand image and promoting business trust. According to statistics, 70% of global top 500 enterprises have their own corporate jets even jet team.
Since 2008, Minsheng Financial Leasing can be said to be the largest driver of the domestic corporate jet market. In the wake of the financial crisis, we boldly innovate in business mode to introduce the mainstream corporate jet models of the world's major manufacturers through the batch purchasing mode, and achieve the best gate position resources and business conditions suitable for the delivery habits for the domestic clients, which is welcomed by the leasing enterprises. We successfully create the corporate jet leasing market in China, which has ever doubled the corporate jets in our country. At present, at the urging of national “One Belt, One Road” and international production capacity cooperation and other policies, Chinese enterprises more and more frequently involve in the international economic activities. With the significant traffic tool - corporate jets, the enterprises with corporate jets have efficiently improved their operation and management efficiency, and established their good business image, which greatly benefit them to occupy the active position in the international economic exchanges and market competition.
Second, from the perspective of policy environment, China pays increasing attention to the general aviation:
In recent years, the general aviation industry has been developed rapidly in China. As at the end of 2015, there were more than 300 general airports, 281 general aviation enterprise, and 1874 registered general aviation aircraft.
However, it should be noted that compared with developed countries in Europe and America, there are still small general aviation industry and weak general aviation service in China. For the developed countries in Europe and the United States, they have unusually developed business aviation with flight volume which can be compared with the amount of ordinary commercial flights. At present, more than 90% of the civil aircrafts used in the world are corporate jets and industrial, agricultural, recreational and sports aircrafts.
Under such circumstances, on May 4th of the year, Premier Li Keqiang chaired a State Council executive meeting to deploy the promotion of general aviation industry development. Subsequently, General Office of the State Council issued the Guiding Opinions on Promoting the Development of General Aviation Industry. The Opinions explicitly proposes to “encourage qualified areas to develop business aviation so as to meet personalized, efficient travel needs”, and determines the general aviation development goals as building “more than 500 general airports with 5000 general aircrafts, cultivating a group of general aviation enterprises with market competitiveness with size of general aviation industry economy over 1 trillion Yuan", which lays a good foundation of policy environment for the sustainable and healthy development of the general aviation industry. It also marks that the development of business aviation industry in China will usher in a new opportunity.
Third, from the perspective of transaction environment, the domestic second-hand trading market of corporate jets has gradually been formed:
In the process that Minsheng Financial Leasing fills the gaps of domestic corporate jet leasing market, and actively explores the leasing business of domestic corporate jets, we are simultaneously actively cultivating the second-hand trading market of corporate jets. Up to now, the concept to buy new instead of second-hand jets has been changed, and more and more customers begin considering the cost-effective second-hand business jets. For the customers who have already owned corporate jets, they show a greater intention to replace with higher jet modes and brands. For our company, the second-hand jet and industry chain will be our forcefully-created new service, including procurement and sales of second-hand jets in the global market, advisory services of second-hand aircraft transaction, and value-added services relevant to the business aviation industry chain, so as to fully cover the domestic and international market of new and second-hand corporate jets.
In fact, with the increasing discourse power and influence of Minsheng Financial Leasing for the corporate jet market in Asia Pacific and the world, more and more customers especially overseas customers negotiate corporate jet procurement and financing business with us. We will continuously innovate in a variety of business products to fit the diversified demand of domestic and foreign customers, which meets the needs of customers not only to buy jets from the manufacturers, also to procure second-hand corporate jets from the global market. We more hope to help customers achieve the sales of existing corporate jets in the global market so as to realize the purpose of upgrading.
Of course, in the development process of corporate jet leasing segment market, we will inevitably encounter some problems. The current corporate jet leasing market is also facing some challenges:
The first is macroeconomic challenges.
In 2016, it is difficult for the world economy to get rid of the downturn situation, including the emerging economies. In the past two years, subject to the domestic and international macroeconomic situation and other factors, the growth rate of domestic business aviation market really appears slowdown status compared with the previous rapid growth.
However, it should be noted that the current corporate jet business faces the change of market demand structure instead of its stagnant and shrinking business. In the process of adapting to these changes, we see a more diversified, more rational market. If it is rough development with high speed for the previous market, the present market is more delicate with more solid demand, which put forward higher requirements for the leasing industry service and business level. For the industry, such a new situation is a painful and exciting process. We believe that with the economic transition and policy implementation, the future corporate jet market will usher in a new opportunity on the existing basis. Now, what we should do is to improve our skills and ability so as to upgrade our service level of whole industry chain, making ourselves completely ready for more mature, professional and pluralistic market.
The next is the constraints in the aspect of fiscal taxation policy.
The past experience of USA and European countries with developed leasing industry shows that the market with good policy environment has powerful leasing competitiveness, for example, Ireland is a gathering place for current global aircraft leasing industry. The world's top 10 aircraft leasing companies are all engaged in aircraft leasing business, set up headquarters, regional centers or operation centers in Ireland. Let us look at the performance of Irish fiscal taxation policy:
In the aspect of tax condition and accounting depreciation policy, Irish government implements the policy to provide 12.5% preferential income tax for the "tax resident enterprises" which meet the requirements. The tax rate is lower than that of most countries and regions and also the lowest one in EU countries. In the tax declaration, the accelerated depreciation policy can be used for the aircraft assets with setting of 8-year period and zero residue value, namely setting of top annual depreciation rate at 12.5%, which greatly reduces the total amount of taxable profits. At the same time, Ireland signed a Double Taxation Avoidance Agreement with 62 countries and regions in the world. According to the agreement, the contracting government shall implement income tax reduction policy for foreign enterprises which have paid the withholding tax in their own countries. The leasing company established in Ireland will therefore be able to obtain some tax advantages and convert it as the price advantage giving the airlines, which improve the advantages of the Irish leasing companies in the global market competition.
Today, Chinese financial leasing companies have been more and more involved in international competition. If the domestic aviation leasing industry wants to have competiveness in the international competition, even keeps the service advantage for the domestic customers, it must consider studying the huge difference between domestic and overseas industry policies as soon as possible. To a certain extent, the policy barriers should be broken to achieve fiscal policy breakthrough. Otherwise, the domestic buyers have to register or directly buy their aircrafts in overseas, which is unfavorable to the industrial development.
Finally, the bottleneck of the service soft environment
The governments of international aircraft leasing gathering places including Ireland universally provide the suitable development environment for the leasing companies in the aspects of operating convenience and supporting services. And at present, there is still great space to be improved for the domestic market.
In terms of business facilitation, the loose business environment is necessary to promote the development of aircraft leasing industry. For example, there is no special regulatory requirement for the aircraft leasing business or no foreign exchange control or similar restriction on transnational capital flows or no special limit for asset retrieval, establishment of branches etc in Ireland. And the procedure is simple and efficient for company registration.
In the aspect of service environment, the mature related support industry, perfect education system and high-quality professional team is a good prerequisite for the development of aircraft leasing industry. With accounting services as an example, the professional service companies can complete the whole process work for the aircraft leasing companies including from the establishment of project companies to directors dispatch, tax declaration, preparation of monthly statements, cooperation with audit and archives management etc, which will help assist the aircraft leasing companies in the early development to quickly carry out business, and also facilitate the mature aircraft leasing company to more focus on the development of core business. At present, such professional service companies and professionals are still needed greatly in the domestic market.
Over the past few years, Minsheng Financial Leasing was not limited to buying and selling aircrafts in the corporate jet leasing service, but conducted a large number of professional practice in the aspects of jet operation, customer service and industry environment, the constant improvement of related supporting resources etc. In the future, we also hope to join hands with you to further improve the soft environment of domestic aviation leasing service.
All the leaders, guests and friends, the differentiated operation practice of Minsheng Financial Leasing shows that only innovation can open a path of development and lead the development of the industry while innovation cannot be lack of the support of national policy. It is due to the pilot of project company policy of domestic bonded area in Tianjin Dongjiang Bonded Port that Minsheng Financial Leasing innovates in the corporate jet business with a rapid development.
China is vigorously promoting the construction of a free trade pilot zone with institutional innovation as the core, which provides a broad space for the financial leasing companies to achieve new breakthroughs in tax revenue and financial policies. These years, Tianjin Municipal Government and Dongjiang Bonded Port Zone Administrative Committee have been unremittingly doing a lot of work in order to address the bottleneck problem countered by the financial leasing industry in the aspects of external policy environment, and achieved a series of breakthroughs, especially in the Dongjiang Bonded Port Area, which creates a best policy environment for the rapid and healthy development of leasing industry in our country.
We focus on the most promising Dongjiang Bonded Port Area, also sincerely expect that Tianjin Municipal Government and Dongjiang Bonded Port Zone Administrative Committee can further learn from international experience, with joint efforts of all parties lead the industry to conduct constant innovation and bold practice in various types of institutional innovation and industrial environment construction, and deeply study the policy implementation platform and measures of national "civil aviation power" strategy to improve and optimize the loose environment for the financial leasing company in the tax revenue and financial support policy, creating another internationally famous aircraft leasing gathering place with distinctive characteristics in comparison with Ireland.
To this end, I propose the following policy recommendations:
(a) Preferential income tax rates
We propose to implement preferential income tax rate policy with international competitiveness for the cross-border import and export financing leasing business engaged by the financial leasing companies and their professional subsidiaries and project companies established in the bonded zones/free trade zones, with reference to the policies of Ireland, Singapore and other countries and regions with better development of leasing business.
(b) Investment cost tax credit policy
With reference to the investment cost tax credit act implemented by the United States in order to encourage export business, we propose our country to implement investment cost tax credit policy in the corporate income tax for the financial leasing import and export business engaged by the financial leasing companies for the purpose of supporting “Made-in-China Goes Out” so that the leasing companies can recover some investment from the deduction given by governments at the same year.
(c) Pre-tax accelerated depreciation.
It is proposed that the enterprises engaged in cross-border operational leasing business shall calculate depreciation at no less than the minimum depreciation period stipulated in the tax law when calculating the income tax.
(d) The convenience of consolidated tax
According to the business features of aircraft leasing implemented in SPV project company, we propose to implement consolidated taxation for value-added tax, income tax and all additional taxes. And the parent company of the single subsidiary or the specified host enterprise centrally handles the taxation, which not only meets the business requirements but also facilitates the taxation authority’s actual operation.
(e) Financial leasing enterprises are included in the preferential policies for export
n the preferential policies given to the export enterprises such as tax rebates, financial subsidies etc, the state should included the financial leasing companies into the policy category. In the policy of promoting the export through discount, no interest or medium and long term low interest loans, the state should encourage export enterprises and related parties to enlarge the policy effect by use of financial leverage, and the financial leasing companies will export the large equipment by leasing.
Conversion of development mode, differentiated competition and characteristic development has become the strategic choice of financial leasing companies. We believe that the further active exploration and pilot of Tianjin Free Trade Zone and Dongjiang Bonded Port Zone in the breakthrough of financial leasing policy will effectively promote the financial leasing company to strengthen their operation and management abilities of leasing assets in the specific business areas with their own advantages based on their own characteristics, and to create the business mode and profit mode reflecting the core competitiveness for their innovation and development with wings outspread.