CALC Shares View on Repercussions from the Covid-19 Pandemic
Well-positioned to Walk Through Difficulties Together with Industry Partners
22 Apr 2020
The Covid-19 pandemic is inflicting repercussions on all industries. Yet with the unique ability to fuel trade activities, support jobs and connect businesses, the aviation industry has its value being recognized by governments from around the world on facilitating recoveries. This is an industry that supports over 60 million jobs and nearly US$3 trillion in economic activities throughout the world. Aviation industry consultancy Ishka estimates that as of 17th April 2020, governments from around the world have in place confirmed bailout or assistance packages aggregating US$75.7 billion in value for airlines. If support measures that have yet to be confirmed were to be included, the total rescue package for the industry will top US$92.8 billion.
China has been showcasing the critical role played by the aviation industry in a modern economy. With the coronavirus outbreak coming under control, airlines are gradually resuming their flights to support commercial activities. Chinese carriers have started to settle their deferred outstanding rentals. The recovery path of the aviation market in China will establish the trajectory for other markets from around the world, which that are still in a capacity cutting phase amid the Covid-19 pandemic. While the landscape for the global aviation industry is set to be reshaped by the pandemic, key industry participants still have strong confidence in the sustaining demand growth for the long term as residents from around the world continue to connect with one another. This trend is well-underpinned by the lingering low interest rate environment, low crude prices that help airlines lower their operational costs and more balanced demand and supply dynamics.
The strategy of CALC has always been to pursue stable and sustainable growth in the relatively resilient aviation sector. CALC has nurtured unparallel edges in tackling challenges from the current market environment.
- CALC has been highly selective in engaging airline clients.
Chinese clients comprise 65% of CALC's fleet of 139 aircraft (self-owned and managed) as of 31 March 2020, the majority of which are state-owned airlines with strong financial and liquidity strengths. These shield CALC from impacts of disruptions in international traffic given the strong domestic demand. The majority of CALC’s non-Chinese clients are flag-carriers or backed by strong shareholders.
- CALC has also been very selective in identifying aircraft assets.
92.8% of CALC’s fleet are narrow-body aircraft, a very liquid asset class and an aircraft type poised to be highly sought-after for domestic and regional routes once the market recovers. CALC has also been maintaining one of the industry’s youngest and most modern fleet with long remaining lease tenors. This has alleviated the pressure on CALC for remarketing of aircraft assets in the coming years.
- CALC has developed a diversity of different financing channels
CALC has also developed a diversity of different funding sources both in China and offshore, including Pre-Delivery Payment (“PDP”) syndicated loans, aircraft project loans, US dollar bonds, Renminbi medium-term notes, corporate bonds and others, on top of its asset-light business model. In March 2020, CALC showcased its strong funding capability as it secured a RMB1 billion borrowing in China priced at only 3.65%. The Company has a strong financial position with its cash and bank balances totaling HK$3.8 billion and undrawn borrowing facilities of HK$4.3 billion as of 31 March 2020.
The global aviation industry is established with partnerships and cooperation. Underscoring CALC’s success is its flexibility in adapting to the rapidly-changing market environment, with the support from airline clients, aviation industry partners, financiers and shareholders. At CALC, we are proud to stand with all our stakeholders during these unprecedented challenging times and we have pledged to walk through all difficulties with our partners together.