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00:00It is a huge market here. Now you're here then. China is one which is continually growing. What are the opportunities for you. China's got tremendous opportunities out there. And over the last 20 years we've seen explosive growth in the amount of Chinese tourism externally. The amount of internal traffic in China predominantly though that has been carried by the Big Three carriers and their affiliates being China Eastern China's southern and our China. Now the next phase of growth in the Chinese market will be driven by low cost carriers. Currently the penetration rate of the LCD in China is single digits . That's going to change dramatically. Like it has in Europe and in the US you can eat it like you did skies which they can actually navigate through as well and not be closed down randomly if they're going to be successful. And that's the issue isn't it that for them what you've got to look at the infrastructure issues that surround aviation are not unique to China. How long does it take to get a runway in Heathrow. You know a long long time 40 years and counting. We're not done yet . So you know those issues are out there now. That's within the purview of the state to fix about air traffic restrictions particularly around Shanghai is where there are significant restrictions. But I do believe they will get fixed. The state has shown an ability to grow aviation successfully and profitably in China which is not an accusation I can level up many markets. So if you are looking LC season you must be ramping up your orders for single aisle aircraft like the A3 20 new NEO and of course the 737 Max. We are you know we have about 350 of them on order and they are a great success. But at the moment to what's very in demand with low fuel is also the older technology assets you know airlines are saying it cost so much to buy these new machines. I can squeeze out a few more years of life out of the existing metal that I have as well . But there's no doubt in the long run fuel will go up at some point and these machines are going to be the airplane to the future and we are the biggest supplier of metal into China and we intend to keep it that way wet or dry leasing chiefly all dry all dry. The wet leasing business tends to be short shrunk jet a different way it would be when you actually supply the crew cut and dry is when you leave the aircraft. Yes. Yeah. Longer term longer term. Absolutely. So they'll generally 12 year leases for a new airplane or six years for a used airplane and we'll move about 500 aircraft a year. We will buy sell or lease that's more than anyone in the world. It's to every working day in one of 100 countries. So what about leasing rates. How are they varying up in all this. Because we do have evidence of a slowdown taking place in various parts of Asia. You could argue that China's huge potential but is had viewed potential for quite a long time indeed. But lease rates are heavily influenced by interest rates. So the way you think about it is this Let's say out of 24 million dollar machine I was gonna give you that be about a 10 year old narrow body 320 or 737 every 1 percent move and interest rates is about twenty thousand dollars a month you divide 24 million by 12 for monthly and by 100 you get 1 percent. So twelve hundred into 24. So when you're dealing with zero interest rates environment it's profit plus amortization I guess. Exactly. So but now to be fair we had to pass on the drop in interest rates to the customer so a few years ago I might have been getting 60 grand more a month for that airplane. Now I'm not but my margin is intact because my funding cost has come down with that. Okay. Well we talk about the Chinese leasing market. It's getting hot isn't it. Avalon and CRT getting together they snappy the heels of G cast your nearest rival and yourselves. How do you counter that. Well look consolidation is a good thing. I think it's a good thing that Avalon bought CRT of a lie because in the wrong hands an asset of that size would probably lead to some form of price degradation. You need to have experienced professionals Hang Seng you're saying that you're building up some sort of duopoly then. No we're certainly nowhere near that. I can assure you that there are plenty of competitors out there but I think overall what you want in any industry is competent management of large platforms. I think that's what we have here . Consolidation is a good thing in our industry. And so also to be fair with the current demand for aircraft leasing we need to come up as an industry with 40 ise billion a year just to stand still. Give or take 40 billion that we have to finance every year. Now in reality there's two giants air cap and G cars and you've got five other guys who are genuine global players. And we have to take the the lion's share of that every year ad infinitum. We need more players. We don't have enough at the moment to cater for the long term demand for this product. Well Don Ho the chief executive of Sergio it was it was sitting with exactly what you are seeing. Watch this space. If six months before he supports the space and he made that acquisition with CRT of course backed by many here as well. Now should you be saying watch this space as well. Because perhaps you want to get bigger when you've got these five other extraneous players which also might need to actually join with you and you say consolidation is a good thing. That reading between the lines are you in the process of making an acquisition. We are not in the process of making an acquisition for us buying one of the smaller players be at S.A.T. Avalon whoever it is it doesn't do an awful lot for us in terms of our market presence. There's nowhere we aren't. There's no strategic benefit to it. Now look we have been the most acquisitive aircraft leasing company in the world for the last 15 years. We've bought quite a number of companies and if the right deal came along sure. But you know ultimately I have to allocate my shareholders money in the best possible way. And that could be buying airplanes. It could be buying another company. It could be buying ourselves through share buybacks and that's how we look at it every day . We're not here to be the biggest. We're here to be the most profitable and the best. Which brings me to the next question which naturally is get you identified interest rates and where they go next. You know we talk about this the whole time so I'm not going to bore you with that question. What is that the biggest risk you see in the next three to five years in your business in our business as we look forward. I would say a protectionism on a global basis. We're a global business. We rely on free trade. Free trade drives global GDP. Free trade has brought equality to incomes on a global basis more than anything else. People talk about inequality of incomes. And that may well be true to a small part of the world in Western Europe and North America but throughout Asia it has never been more equal in many centuries than what it is today. And that is down to free to risk to globalization is the biggest risk that you pursue. Yes a protectionist world creeping up. Okay. We talked about single ise. We talked about low cost carriers in China but generally at the moment. What about white bodies. I mean this is this is really the bread and butter isn't it. The wide bodies yet. Sure. I mean look I mean I think a lot of our bread and butter but this is the cream and the icing on the cake . And we are by far the biggest player in the wide body market in the world the wide body market has had a new influx of technology. You've had the 380 the 787 the 350 we delivered the first one here in Hong Kong to Cathay Pacific in fact the first two I flew it the other day. You'll like it actually wonderful plane. Fantastic . So the wide body market is one at the moment we have this new influx of technology and the 787 created a lot of delays. And so have a lot of them coming out right now. There's a lot of seats in the wide body market and certain wide bodies are certainly out of favor. So a 40s 74 70 early Vera I've noticed that people weigh 340 inferior and say oh maybe we'll just keep them on the price of oil is already weird. I mean look so airlines are saying to us OK look these are gas guzzlers. And at 100 bucks a barrel I'm incinerating cash but a 50 bucks a barrel I can do. OK so they lease it for another year or two guys got loads to talk about. OK. Just a final question is the A 380 project effectively dead. I don't believe it's dead. I think the 380. Why aren't people buying it then. Because at the moment it's a little bit ahead of its time. It's a fantastic airplane to fly in for the passenger. It is the only airplane in the world. I would change my travel schedule to fly out because of the comfort. It's the flagship of every airline everything on it's the best. Now the issue with us is the big unit and you have to be able to fill it consistently on a decent size fleet to make it work. Not enough airlines in the world have that network because not enough airports in the world are truly slot constrained. You only have a few airports like here in Hong Kong around the world where there's true slot constraint . You need more of that. And then the bigger machine will have its day. So it's a little bit early and probably needs new engines .

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AerCap's Kelly: China Has Tremendous Opportunities

Aengus Kelly, chief executive officer and executive director at AerCap, discusses opportunities in China's aviation market, the demand for single-aisle planes, aircraft leasing in the region, the biggest risks to the industry and the wide-body market. He speaks to Bloomberg's Rishaad Salamat on "Bloomberg Markets." (Source: Bloomberg)

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