CALC strengthens aircraft disassembly project

HONG KONG – China Aircraft Leasing Group Holdings Limited, the largest independent aircraft operating lessor in China, has entered into a series of transactions in order to restructure its investment in the establishment of aircraft disassembly centre in Harbin, the PRC (the “CADC Project”).

The share interest of the Group in the CADC Project via Aircraft Recycling International Limited (“ARI”) will be diluted from 100% to 48%, subject to the independent shareholders’ approval for the proposed restructure. The CADC Project had an aggregate asset value of approximately HK$224 million as at 31 March 2016. The disposal consideration will be consisted of the land, construction cost and its valuation assessed by an independent valuer (whichever is higher), and operating expenses as well as any advance made and interest thereon of the project. It is estimated that the transaction will result in a profit before tax of approximately HK$5 million for the financial year ending 31 December 2016.

Upon completion, CALC through its wholly owned subsidiary Aircraft Recycling International Holdings Limited (“ARI Holdings”) shall remain as the single largest shareholder of ARI; while other shareholders will include CALC’s founding shareholder Friedmann Pacific Asset Management Limited (“FPAM”, via China Aero Investments Limited (“China Aero”)), China Everbright Limited (“China Everbright”, via Neo Modern Limited (“Neo Modern”)), and an independent third party Sky Cheer International Limited (“Sky Cheer”). The board shall comprise of five directors, of which the Group shall nominate two directors and each of Sky Cheer, China Aero and Neo Modern shall nominate one.

Mr. Chen Shuang, Chairman and Chief Executive Officer of CALC said, “The CADC Project is in its development stage and needs considerable internal and external support and advice, including financial, local network and aviation expertise and operational support. This is the second joint investment of China Everbright and FPAM, a combination of financial and aviation expertise offering comprehensive support for the project. We are also glad to bring in Sky Cheer for the local support in Harbin in communications with related government authorities. We believe that the collaboration with partners with respective strengths and expertise will accelerate the commencement of operation of the first purpose built disassembly facility in China, facilitate it to capture the first-mover advantages, and support its sustainable development thereafter.”

Mike Poon, Chairman of FPAM said, “After founded CALC in 2006, FPAM has developed into an investment group focusing on value creation along the aviation industry value-chain after years of effort we have invested in, and the long-term commitment we made to the industry. We are glad to join hands with our longstanding partners again, working towards to make a greater contribution to the development of China’s aviation industry. We believe our first-mover advantages in China, together with our strong network and extensive knowledge gained in the global aviation market, will add value to the strategy formulation and future development of the CADC project.”

According to the investment agreement, the subscription price shall be US$1.0 per ARI Share, which is the par value of ARI Share. Subscription details are as follows:

Number of ARI Shares Shareholding in ARI
immediately after after the Subscription completion

ARI Holdings 4,799,999 48%
Neo Modern 1,400,000 14%
China Aero 1,800,000 18%
Sky Cheer 2,000,000 20%

Neo Modern

Neo Modern is a wholly-owned subsidiary of China Everbright Limited (“CEL”). CEL is a substantial shareholder of the Company with approximately 35.3% of shareholding. Neo Modern will liaise with ARI and the banking and other financial institutions to obtain financing for ARI, as well as provide advice and assistance in financing plan and the issuance of financial products.

China Aero

China Aero is wholly and beneficially owned by Friedmann Pacific Asset Management Limited. It is the second largest shareholder of the Group with approximately 30.5% of shareholding. Leveraging on its experience in the domestic and global aviation industry, China Aero will assist in formulating business strategies of ARI, including aged-aircraft purchases and leasing and sale and distribution of components of used aircraft.

Sky Cheer

Sky Cheer is an independent third party of the Company. It will assist ARI in the communication with related government authorities so as to obtain the necessary support and licensing for the CADC Project.

Upon completion, the Group shall remain as the single largest shareholder holding 48% interest of ARI and additionally, has the right to subscribe for 612,245 ARI Shares, representing approximately 5.77% of the enlarged issued share capital of ARI based on the option agreement.

The CADC Project principally involves the establishment of aircraft disassembly centre in Harbin, the PRC for carrying out the aircraft disassembly, recycling and parts business in the end-of-life aviation market of the PRC. The land has a site area of approximately 299,000 sq.m. The land cost of approximately RMB157.4 million and construction-in-progress in the amount of approximately RMB12.7 million have been paid by the Group. Based on the assessment of an independent valuer appointed by the Group, the market value of the land and the construction-in-progress thereon as at 31 March 2016 is approximately RMB170.1 million.

The primary fund source of the CADC project will be loans from banks. In case additional fund is required, each shareholder has the right to provide shareholder’s loan and guarantee to support ARI. Based on the projection on financial needs of the CADC Project up to the year ending 31 December 2018, the Group has the right to provide financial support to ARI when necessary and expects that the maximum amount of shareholder’s loan and guarantee to be provided by the Group to the CADC Project shall not exceed HK$480 million, HK$600 million and HK$720 million for the year ended 31 December 2016, 2017 and 2018 respectively. The Company will enjoy interests and guarantee fee on the shareholder’s loan and guarantee provided to the CADC Project.

Mr. Chen concluded, “The proposed restructure of our aircraft disassembly project is in line with the Group’s growth strategies of providing value-added aircraft full-life solutions. It will enable CALC to focus its efforts and resources on its core aircraft leasing business, while maintaining a sizeable equity interest in the CADC Project allowing the project to continue its important role in bringing the Group’s full-value chain strategy to life.”

It is expected that when the CADC Project will have a capacity of dismantling 20 aircraft per annum in 2018.