With most of the world looking to emerging markets for substantial growth over the past few years, large markets in Asia, such as China and Indonesia, were big contributors to business aircraft order books. However, with the recent economic slowdown in the Far East, it's likely that this rosy picture will not return for some time. Here's why…
Throughout the region, policies and legislation that do not support business aircraft users have the potential to further slow the growth of business aviation. Here are two important examples: China and Indonesia.
In China, the anti-corruption campaign instituted in 2013 continues to affect the confidence of many existing and prospective buyers of business aircraft, as they are concerned about their relationships with government officials. As a result, many purchases have been deferred or eliminated altogether. However, there was still a solid level of business aircraft activity in 2015 by buyers in China who need aircraft to fulfill their business responsibilities. This correction from the sharp growth in the business aircraft market seen in the past is necessary, and the present steady growth will prove to be more sustainable for the industry.
China has more developed policies for business aircraft than its neighbors. Still, the high Value Added Tax and import tax rates applied to registering aircraft in China is somewhat prohibitive. Aircraft that are not registered in mainland China are limited to landing at secondary airports, and pay higher users fees in many areas. The inconvenience of not being able to fly within the country means that aircraft owners are more likely to pay the high taxes.
Likewise, in Indonesia, the slowdown of the economy has resulted in a corresponding decline in aircraft transactions. In addition, recent steps to tighten and more strictly enforce regulations against internationally-registered aircraft travelling between domestic airports ("cabotage") effectively means that non-Indonesian registered aircraft will not be allowed to fly between cities inside the country, even for private flights. The aim of the change is to encourage all Indonesian-owned aircraft to become registered in Indonesia under that country's "PK" registration.
This creates several challenges for business aircraft owners and operators, which includes limited available financing on PK-registered aircraft. Major international aircraft lenders are still only very selectively providing financing for PK-registered aircraft because the lack of legal precedent in relation to enforceability of lenders' rights in the legal system. Existing aircraft owners who decide to change to PK registration may need to look at either refinancing their aircraft through local banks or otherwise operating the aircraft without bank funding entirely.
In the broader Asia region, we see somewhat greater operational flexibility for private jets in Malaysia, the Philippines, and Thailand.
Asia is well known for high user fees for ground handling, landing, overfly rights, parking, maintenance, flight crews and other airport services. There is little difference in these costs between large cabin and small to mid-size cabin aircraft, which limits the growth of the small to mid-size cabin sector. If the operating costs are the same, regardless of size, why not own a large cabin aircraft that gives more room and range? Many countries in Asia do not differentiate costs for general aviation and commercial aviation because there are few policies established for general aviation. Asia is large, with many diverse countries. Each country has its own aviation regulations and, therefore, it is challenging to see how flying within Asia will be made "user-friendly" in the near future.
Of course, world economic cycles are driven by numerous factors that are beyond the complete control of any government. The cyclical nature of economic activity generally means that the extended period of "good times" that has been experienced in Asia is likely to be followed by a less positive period moving forward.
What we can do now is look to governments to make efforts to put in place policies and regulations that will help to build sustainable growth in aviation. Countries with the highest number of aircraft based in the region, such as China and Indonesia, will benefit hugely from the private aviation industry, and we hope to see these large markets take the lead in the region in developing policies that are truly business aviation friendly.
Jolie Howard is a Vice President at
CIT Business Aircraft Finance, where she leads the business in the Asia Pacific region. CIT Business Aircraft Finance provides financing and leasing programs for owners of business jet aircraft and turbine helicopters, both in the U.S. and in many international jurisdictions.
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