Rolls-Royce & Partners Finance to establish engine leasing entity in Tianjin

Rolls-Royce & Partners Finance, a leading global aircraft engine leasing company co-owned by Rolls-Royce and GATX, has signed an agreement with the Dongjiang Comprehensive Bonded Zone to establish a local entity in Tianjin.

The project, with planned investment of more than 2.3 billion yuan ($343 million), will cover the leasing of multiple types of aircraft engines, asset management and full lifecycle services.

It marks China's first direct aircraft engine leasing project by an overseas company and the first time a large foreign aviation lessor will own and operate leased engine assets through a domestic entity.

"The step today, bringing 2.3-billion-yuan-valued assets into this new platform in Tianjin, is just the beginning. We will continue to grow. We'll have more assets and local capabilities in the next few years as we go forward," Ben Hughes, chief strategy officer of RRPF, said.

Under the model commonly used by overseas lessors, a special-purpose vehicle established in a Chinese bonded zone leases in an engine from abroad before leasing it out to a domestic airline. A new vehicle is often set up for each transaction, while the local entity holds only the right to use the asset and ownership remains overseas. That structure can also add steps to engine maintenance and disposal, cross-border payments and foreign exchange management.

The new RRPF entity will instead keep both ownership and the physical assets in China. Local operations, renminbi financing and asset management will also be handled domestically, significantly reducing intermediate steps and helping airlines reduce foreign exchange management and leasing costs, the company said.

The entity will operate alongside RRPF's existing SPV that provides lease-in, lease-out services in China. The two structures will allow the company to offer domestic carriers a wider range of leasing arrangements and more predictable access to engines.

RRPF's cooperation with Dongjiang dates to 2019, when the two parties signed a memorandum of understanding and established their first special-purpose vehicle. They have since worked on financing, entity upgrading and bringing assets into the bonded zone.