Summary

  • The Guangzhou Enterprises Mergers & Acquisitions Services (“GEMAS”), successfully completed its first trade of used aircraft on 10 January 2019 applying its online exchange platform.
  • The GEMAS Online trading platform provides an objective and transparent bidding process for the trade of used aircraft owned by PRC state controlled entities.  
  • GEMAS facilitates compliance with the “Measures for the Supervision and Administration of the Trading of State-owned Assets in Enterprises” (“Measures”) promulgated on 24 June 2016 by the PRC Government’s State-owned Assets Supervision Administration Commission and the PRC Ministry of Finance.

10 January 2019 marked the first aircraft trade transaction utilising the Guangzhou Enterprises Mergers & Acquisitions Services’ (“GEMAS”) online trading platform.  The GEMAS online trading platform is expected to transform aircraft trading of aircraft owned by a PRC company that is state controlled.  GEMAS provides a transparent arena for aircraft trading transactions.  Similar online trading platforms exist in other regions of China, namely the “China Beijing Equity Exchange” and the “Shanghai United Assets and Equity Exchange”.

Growing Opportunity for Aircraft Trading in China

Chinese airlines have a reputation for owning and operating “young” aircraft in their fleets.  It is estimated that currently, the average age of aircraft operating in China is approximately 6 years and by comparison, the average age of aircraft operated by North American airlines is over 12 years.  Chinese airlines and leasing companies (majority of which are state controlled) will continue to retire aircraft that exceed a threshold age, allowing for older aircraft to be replaced by newer and more efficient aircraft.

The value of used aircraft acquired for restoration, renovation, conversion or dismantling for parts is of itself a growing industry. The development of maintenance and restoration technology in the aviation industry has allowed for aircraft parts to be restored, recycled and resold.  The online aircraft trading platform provided by GEMAS offers a significant opportunity for Chinese airlines and lessors to trade used aircraft, by matching buyer and seller on “objective terms”, through a transparent and regulated platform.

An Innovative Mode to Aircraft Trading

GEMAS’ online trading platform highlights the implementation of innovative techniques being applied by the Chinese Government.  Aircraft sold on the GEMAS platform will need to follow regulations and conditions prescribed by the Measures, requiring the seller to publicly disclose certain information relating to its corporate governance, details of the asset (with the dissemination of such information being released required to follow strict guidelines, reducing the risk of preference) and the precise details of the asset being sold, allowing potential buyers a fair opportunity to conduct necessary due diligence.  Potential buyers would then submit undisclosed online applications with GEMAS expressing their interest and GEMAS would then conduct an initial review to assess such applications.  Only qualified bidders determined by GEMAS based on prescribed guidelines would be eligible to participate in the online bidding process.  Qualified bidders will then be allowed an opportunity to physically inspect the relevant aircraft .  Qualified prospective buyers will also be required to prepay a deposit which will be held by GEMAS as agent for the seller.

The seller and prospective qualified purchasers will also separately negotiate a sale and purchase agreement, the terms of such sale and purchase agreement will need to comply with the Measures.

A Level Playing Field

GEMAS’ online trading platform is intended to apply an objective set of conditions and criteria to the trading of assets owned by state controlled corporations.  It is intended to offer a “level playing field” in the assessment of bids, reducing the risk of adverse influence due to favouritism, subjective assessment or influence by “guanxi” in the sale of such assets.

Overall, GEMAS’ online trading platform is an innovative initiative developed by the Chinese government in its attempt to allow for state owned assets be sold on an indiscriminate and objective basis.  We anticipate that the use of such platform will continue to grow, in the context of China’s growing aviation market.