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Business

Hong Kong airlines see 'indirect' benefit from lower tax for lessors

Cathay Pacific expects little change in current aircraft leasing practice

HONG KONG -- Hong Kong's bid to boost its attractiveness as a hub for aircraft leasing drew a tepid response from local airlines, which say the impact of tax concessions would be indirect.

Proposals to give tax concessions to aircraft lessors have been tabled for discussion at the legislature. Such measures include putting a cap on taxable profit at 20% of net rental income and halving the profit tax rate for qualifying lessors from 16.5% to 8.25%.

Keith Brown, Cathay Pacific Airways general manager for procurement and aircraft trading, center, and Andrew Cowen, HK Express chief executive, right, at an aviation conference held in Hong Kong on May 8. (Photo by Jennifer Lo)

The move is likely to put Hong Kong on par with rivals, such as Ireland and Singapore, which have profit tax rates of 12.5% and 10% respectively.

"I'm not sure if that will have a huge impact on us," said Keith Brown, general manager of procurement and aircraft trading at Hong Kong-based Cathay Pacific Airways, at an aviation conference held in Hong Kong on Monday.

"Perhaps what we could do is to attract more lessors out from the mainland into the international market and Hong Kong. That means more competition and better value for us."

Cathay has some 28% of leased aircraft in its fleet of 140. But the premium airline owned by conglomerate Swire Pacific has no urge to lease more. "We see that more expensive [leasing] for a 20-year period than acquisition," said Brown.

He added that Cathay does not target a "fixed percentage" and its leasing decision will depend on "its view of the aircraft market" including the launch of new models.

Consultancy PwC estimated that the number of leased aircraft to be managed in Hong Kong would be more than 3,000 with a value of $91 billion in the next 20 years, according to research in 2015, due to strong Chinese demand.

Others are more enthusiastic about the new tax regime that could potentially lower the cost of leasing aircraft for some carriers. HK Express, a budget airline of the Chinese tourism conglomerate HNA Group, is one of them.

"At the moment, it's 100% [leasing]," said Andrew Cowen, chief executive at HK Express, adding that it "makes a lot more sense" for smaller airlines to lease new plane models due to a lack of capital and expertise in aircraft acquisition.

Cowen hopes that the tax reduction would indirectly translate into lower plane costs for carriers, which should be "in the interest of the entire aviation community."

"Our market is currently facing a lot of pressure on passenger yields, [an industry indicator of profitability]. Lower costs mean lower fares. For us, it means more passengers," he added.

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