BOC Aviation Ltd Shs Unitary 144A/Reg S 02588

BOC Aviation Earnings: Aircraft Delivery Delay Still a Risk, but Yields to Rise; Shares Attractive

BOC Aviation’s 2023 net profit of USD 764 million fell 8% short of our expectation, as much of the firm's new aircraft was only delivered in the fourth quarter. While this limited growth in 2023 operating lease income to 7.1% year on year, the recovery of USD 258 million from insurers for aircraft detained in Russia helped lift the top line. Net lease yield improved to 7.1% from 7.0% a year ago, implying that while the leasing market was robust, it is currently mainly tracking higher funding costs. With interest rates expected to decline in the second half of 2024, coupled with a more even spread in aircraft deliveries, we expect net lease yields for BOC Aviation to widen to 7.8% in 2024 and 8.3% in 2025. We believe the aircraft leasing market outlook remains positive, with airlines still short of capacity and delays in aircraft deliveries benefiting BOC Aviation, which has a confirmed order book and access to funding.