Korean banks extend $130 mn loans for Asian aircraft financing: reports

Three South Korean lenders – KDB Bank, Woori Bank and Industrial Bank of Korea (IBK) - have recently provided a combined $130 million in direct loans to a Chinese leasing company and an Indonesian budget carrier, making their inroads into Asian aviation finance business.

State-run KDB Bank extended a $50 million senior loan to Indonesia’s Lion Air, participating in the $420 million refinancing transaction for the low-cost carrier’s fleet of aircraft, according to CNews, a local news outlet for the construction industry on April 18.

For the refinancing led by PK AirFinance, wholly owned by GE Capital Aviation Services (GECAS), senior direct loans with a six-year term were provided to Lion Air, including a $77 million loan lent by its parent Lion Air Group.

GECAS announced on April 13 that it had concluded a significant aircraft financing transaction covering a total of 51 aircraft operated by Lion Air Group, which also involved KDB Bank.

The financing covers 21 Boeing 737-900ER's currently operated by Lion Air and 30 aircraft on order by the low-cost airline, including Boeing 737 MAX 8’s and 9’s as well as the Airbus A320/A321neo, according to GECAS.

But it did not provide any financial details about the transaction.

Separately, Woori Bank and IBK lent $40 million and $39 million each in secured loans in March to CMIG Aviation, a unit of China Minsheng Investment Group, to fund its purchase of A330, Woori Bank said last week.

Woori arranged a $80 million financing for the aircraft purchase, including the $40 million loan it extended. It became the first South Korean lender entering Chinese aircraft finance market as a loan arranger.

Sichuan Airlines is understood to lease the aircraft, the Seoul Economic Daily reported, without citing a source.

“For aircraft refinancing, direct loans are preferred over financing from brokerage companies. They charge higher interest rates because they use fund vehicles,” CNews quoted an unnamed industry source as saying.

“In this transaction, Lion Air (Group) directly participated in the refinancing and aircraft was provided as a collateral. Thus, there will be no difficulty in collecting the debt,” the source added, referring to KDB Bank’s $50 million loan extended to Lion Air.

Lion Air will pay back the principal and interests in installments over the next six years, according to the CNews.

KDB Bank expects its participation in the refinancing transaction will lead to new opportunities to provide various aviation financing to Lion Air.

South Korean banks are making their foray into aviation finance business in search of higher margins, catching up with domestic brokerage houses which had launched a series of aviation finance funds in the past few years.

But they seem to take a different approach from that of South Korean brokerage companies which had focused on top-rated airlines and suffered from squeezed margins because of competition.

Last September, KEB Hana Bank arranged $300 million lease financing for an aircraft portfolio of Avolon, a Dublin-based aircraft leasing company.

In December, Korea Investment & Securities Co. Ltd., one of the largest South Korean brokerage firm, acquired a Boeing aircraft leased by Taiwan-based China Airlines for around 180 billion won.



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