BOC Aviation tests bond markets amid halted travel

Singaporean aircraft leasing company BOC Aviation is testing the bond waters at a period when most global airlines are either scaling down or completely shutting down operations owing to the ongoing Coronavirus pandemic.

Bank of China Ltd is selling dollar bonds at a relatively wider spread compared to a similar issue in January. From that time, the aviation sector has been thrown into a state of difficulty, in a bid to contain the impact of travel bans that have crippled the industry’s operations. Just a few days ago, we saw Virgin Australia Holdings Ltd (OTCMKTS: VBHLF) collapse due to impact of the pandemic.

Any time from now, BOC Aviation is expected to price its proposed 5-year notes at a premium of 330 basis points above US Treasuries, leaving 100 basis points in comparison with a similar issue in January.

The ongoing slump in the global aviation sector affects aircraft leasing companies in the same way it does the airlines. If, for instance, companies that they lease planes to collapse, leasing companies would face increased recovery costs.

Brighter future

But even amid the challenging times, therein lies a silver lining for the aviation sector at large. Most countries consider their local aviation companies too important to fail and already, a few governments have hinted support.

BOC Aviation counts more than 90 airlines as clients, offering a higher diversity to its bond investors.

“BOC Aviation has a strong balance sheet and stands to gain in present times as aircraft prices will remain depressed for a while and many airlines will now be even keener to do aircraft sale-and-leasebacks to raise cash,” this is according to James Teo, Bloomberg Intelligence analyst.

In its December 2019 financial report, the aviation giant indicated its revenue had jumped 15% year-on-year, to about £1.5 billion. Profit before tax and net profit after tax each rose by 13% to £626 million and £567 million respectively from 2018.

The board recommended a dividend of £0.17 per share for 2019 pending a member approval scheduled for next month.

BOC Aviation’s operations span more than 40 countries and regions, with a fleet portfolio of more than 500 aircraft.

The company is also a member of the Bank of China Group.