Impairment charges impact CDB Aviation results
CDB Aviation is the latest of the leading lessors to have taken substantial impairment charges as a result of the ‘significant headwinds’ created by the pandemic. While pre-tax profits were only down slightly, by some $30 million, between 2019 and 2020, impairments on 42 aircraft in 2020 resulted in a pre-tax loss for the year of $47 million.

‘The pandemic-battered environment has inflicted an array of unexpected and unparalleled challenges upon all stakeholders across the global air transport sector, generating significant near-term headwinds,’ according to CDB Aviation CEO Patrick Hannigan. "In the face of these adverse conditions, our team has persisted to attain continued growth and advance key initiatives, progressing several aspects of our long-term vision.”

These difficult conditions are reflected in the lessor’s latest results, as presented in those of its parent, China Development Bank Financial Leasing, in its filing with the Hong Kong Stock Exchange. CDB Leasing’s aircraft leasing business (which is exclusively CDB Aviation) made a profit before impairment losses and income tax of RMB1.9 billion ($292m) for 2020, which compares with RMB2.1 billion ($323m) in 2019. But after taking an impairment charge on 42 aircraft the business recorded an RMB306 million ($47m) loss before income tax for the 12 months to 31 December. This compares to a pre-tax profit of RMB1.6 billion ($246m) the previous year, when it took a much smaller charge on 14 aircraft.

Nevertheless, the business achieved a significant level of activity during 2020, including $4.7 billion of financing transactions. It acquired 29 aircraft on operating lease, including three via direct OEM orders, 21 via sale-lease-back (worth worth $1.2 billion) and three through JOLCOs. It also entered into commitments on a further 23 aircraft on sale and leasebacks for delivery in 2021/2022. During the year it signed 61 new leases and 16 lease extensions and acquired 29 new aircraft, including nine 737 MAX 8, seven A321neo, six A320neo, five 737-800, one 787-9, and one A350-900, and sold 18 aircaft with a total gain of $78.5 million. In addition, it contracted its first-ever A330-300 P2F freighter conversions.

At the end of the year the company had 236 owned aircraft, two managed aircraft and 161 committed aircraft. Of those, 235 owned aircraft were held for operating lease and a single owned aircraft under finance lease. The weighted average age by net book value of the group’s owned aircraft held for operating lease was 4.5 years and the weighted average remaining lease term by net book value of the owned aircraft held for operating lease was 7.2 years.

The Group’s owned and in-service fleet mainly includes narrow-body aircraft types such as Airbus A320ceo and A320neo family aircraft and Boeing 737 NG and 737 MAX family aircraft, and wide-body aircraft types such as the Airbus A330ceo, A330neo and A350, and the Boeing 777-300ER and 787-9. As of December 31, 2020, weighted by net book value, the Group’s aircraft fleet consists of 67% narrow-body aircraft, 29% wide-body aircraft and 4% regional and other aircraft. As of December 31, 2020, the net book value of the Group’s owned aircraft was $9.6 billion.

At year-end the Group was committed to purchasing 138 aircraft under its direct OEM orders, including 66 aircraft from Boeing3 and 72 aircraft from Airbus. CDB Aviation has cancelled 35 undelivered Boeing 737 MAX 8s and all its 737 MAX 10 aircraft has been transferred to 737 MAX 8 orders. These aircraft are scheduled for delivery between 2021 and 2026. The Group also has contractual commitments to acquire a further 23 aircraft under sale and leaseback transactions. The aggregate of these commitments net of predelivery payments paid is RMB 48,051 million.

Hannigan said the company would remain focussed in both the near and longer-term on working with its shareholder to leverage its ‘financially strong, highly competitive, and industry-oriented position to deliver financing and fleet solutions to airlines in all markets, with a clear focus on maintaining growth momentum and building for the future.’

Vol. 11 Issue 7 of Aviation Finance