soaring to new heights in the greater bay area

Soaring to new heights in the Greater Bay Area:Opportunities and market potentials for the aviation industry

Soaring to new heights in the Greater Bay Area:

Opportunities and market potentials for the aviation industry

Content1. Strengths of the aviation industry in the Greater Bay Area 3

from a macro perspective

2. Optimise airport infrastructures to scale the development of the industry 5

3. Cultivate growth of related industries through marketisation of airlines 9

4. Achieve efficient allocation of aviation resources through a comprehensive 12

transportation system

5. Logistics capacity as a growth enabler for aviation leasing 14

Conclusion 17

Contact us 18

2



1. Strengths of the aviation industry in the Greater Bay Area from a macro perspective

3



1. Strengths of the aviation industry in the GBA from a macro perspective

In February 2019, the Central Committee of the Communist Party of China and the State Council officially published the “Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area”. It stated clearly the national-level strategic plan for developing the Guangdong-Hong Kong-Macao Greater Bay Area (hereinafter referred to as Greater Bay Area or GBA for short), with the aim to position it as one of the world’s top four bay areas comparable to Greater New York, San Francisco Bay Area and Greater Tokyo Area.

With a total area of 56,000 km2, GBA is home to a population of over 70 million from nine municipalities and two Special Administrative Regions. In 2018, the region’s GDP exceeded RMB 10 trillion, making it the largest and most dynamic economic region in China and the world.

The Greater Bay Area is a hub that integrates manufacturing, technology and financial services –incorporating the strategic positioning of the other three global Bay Areas. The Guangdong province has been a major manufacturing cluster since China’s economic reform and opening-up, with Dongguan and Foshan renowned for being the centre of world-class manufacturing “world’s factory” in particular.

Shenzhen is now a leading global technology and internet industry, while Hong Kong and Macao earned their fame respectively as a world-renowned financial centre and the “Las Vegas of the East”. With Hong Kong and Macao located at the forefront and governed under the “One Country, Two Systems” principle, 9+2 city cluster of Greater Bay Area will enjoy huge potential in fostering its developments.

We believe that high mobility of the population and free flow of capital and goods are essential to the development of an economy. Hence, an efficient transportation system is crucial in facilitating economic growth. And in the modern era, aviation is an integral part of a leading-edge transportation systems.

4

GDP of the Greater Bay Area in 2018

(100 million yuan)

Macau

3,607

Guangzhou

22,859

Zhaoqing

2,202

Dongguan

8,279

Foshan

9,936

Huizhou

4,103

Jiangmen

2,900

Shenzhen

24,222

Zhongshan

3,633

Hong Kong

24,006

Zhuhai

2,915

Source：CEIC、National Bureau of Statistics，PwC



2. Optimise airport infrastructures to scale the development of the industry

5



2. Optimise airport infrastructures to scale the development of the industry

Currently, there are ten civil airports in operation in the

GBA. Of those, Hong Kong International Airport,

Guangzhou Baiyun International Airport and Shenzhen

Bao’an International Airport together form an

international aviation hubs boasting a combined

passenger traffic of nearly 200 million and cargo of over

8 million tonnes in 2018. Hong Kong International

Airport is particularly outstanding, with air traffic of 70

million passengers (ranked eighth) and 5.12 million

tonnes of cargos ranked first in the world. Driven by a

strong demand, there is a huge potential for the

development of the aviation industry in the GBA. Air

traffic passengers and freight demands in the GBA are

estimated to reach 233 million passengers and 10

million tonnes, respectively, by 2020.

The three major international airport hubs serve as

global gateways, playing a leading role in the overall

development of airport infrastructure in the GBA. Macao

International Airport and Zhuhai Jinwan Airport have

reached the level of “ten-millions transportation”.

Airports in Zhanjiang, Foshan, Huizhou, Jieyang, and

Meizhou are also in the midst of rapid development.

There are numerous projects in the pipeline such as the

Third Runway Passenger Building of the Hong Kong

International Airport, the opening of T2 at Guangzhou

Baiyun International Airport and T3 expansion plan,

commissioning of T2 at Baiyun Airport and the planning

of T3, as well as the construction of Yuexi International

Airport. The developments of the civil aviation

infrastructures are moving at speed and reaching new

heights.

Meanwhile, with the support of government

departments in fostering logistics, ports, business

services, manufacturing, and other relevant industries

and functions, the GBA has seen an effective boost in

its economic development and further acceleration in

the connectivity and mobility of its population, capital

and goods. The GBA is expected to become China’s

largest cluster of air transport and aviation industry in

the near future.

Source：2018 Statistical Bulletin of Civil Aviation Industry Development, CEIC

6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

Number of passengers 2018

Number of passengers 2017

Number of passengers year-on-year growth

Top 10 airports by number of passengers



2018 Top 10 airports by air traffic movements

0.00.51.01.52.02.53.03.54.04.55.0

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Air traffic movements 2018 Air traffic movements 2017 起降架次 year-on-year growth

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000 Cargoes and airmails throughput (Tonnes) 2018

Cargoes and airmails throughput (Tonnes) 2017

Cargoes and airmails throughput (Tonnes) year-on-year growth

2018 Top 10 airports by cargoes and airmails throughput（Tonnes）

7

Source: 2018 Statistical Bulletin of Civil Aviation Industry Development, CEIC

Source: 2018 Statistical Bulletin of Civil Aviation Industry Development

Air traffic movements

year-on-year growth



0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000

2013

2014

2015

2016

2017

2018

Guangdong province spans over 800 km from east to west, with Guangzhou-Shenzhen-Hong Kong located at its

centre measuring a distance of about 400km to the east, west and north border of the province. The decentralised

locations of small and medium-sized airports alleviate to some degree the pressure of domestic flights on the three

international airport hubs. It also creates a conducive atmosphere for the growth of regional airlines. Currently, the

small and medium-sized airports in the GBA have a relatively lower usage rate and lack the presence of domestic

flag carriers. With the government’s tremendous support in employing ARJ21 regional carriers, the GBA is well-

poised to nurture the growth of the regional aviation market.

8

来源：2018年民航机场生产统计公报

PwC’s point of view

Local governments and regulatory authorities must join hands to optimise the policy

environment continuously

The aviation development in the GBA requires local policy support and effective regulation that are

specific to local needs. Local governments at all levels, industrial and commercial management

authorities, financial and taxation departments, and civil aviation authorities all contribute a direct

impact on the industry. A strong regulatory system is critical to the development of civil aviation

services, which underpin public safety and national security. As one of the driving forces for the local

economic growth, the fiscal and commercial policies should be directed to promote a high degree of

economic vibrancy for the industry. The policy environment should continue to evolve and mature

through exploration and experimenting in tandem with the overall economic development.

Absolute GDP per capita (Yuan)



3. Cultivate growth of related industries through marketisation of airlines

9



3. Cultivate growth of related industries through marketisation of airlines

In line with the positioning and functions of the airport

hubs, the three leading airports in the Greater Bay Area

are home to some internationally renowned flag

carriers, including Cathay Pacific, China Southern

Airlines and Shenzhen Airlines with an extensive

network of worldwide routes.

In response to a diversified customer base and market

segmentation, air transport services in the GBA are

becoming more market-oriented. We see that Air China,

China Eastern Airlines, and HNA Group have

penetrated the most destinations in the GBA, further

enriching the route coverage connecting the GBA and

domestic destinations. Through code-sharing practices,

airline alliance can fully utilise their logistics resources.

The privately-owned Donghai Airlines is based in

Shenzhen and connected to international destinations;

9 Air has successfully established itself in a more

fragmented low-cost airline market in just a few years.

SF Airlines and Longhao Airlines have become an icon

of private-owned cargo airlines. The flag carrier airlines

in GBA altogether own a fleet of aircrafts of more than

1,200.

10

Source: https://www.hongkongairport.com/iwov-resources/file/airport-authority/publications/annual-and-interim-

reports/tc/18_19/AR1819_Chi_Airlines-and-Destinations.pdf

In order to supplement the large-scale public air

transportation, the operational volume of business jets

and helicopters is considerable in the GBA. Well-known

general aviation companies such as BAA Jet

Management and CITIC Offshore Helicopter are both

based in Shenzhen. The robust economic foundation of

the region has brought concrete demand for, it is

predicted that business private flights. As such, Hong

Kong, Macao and Shenzhen are key aviation nodes for

domestic and international business routes.

Airlines typically operate in capital and technology-

intensive industry, with a long operations chain and

many complementary businesses. The numerous

airlines in the GBA and their development will drive

growth in the region through many ways. First, it will

gather passenger flow and cargo logistics to address

the demand in transportation and thus create

consumption. Secondly, there will be more investment

and financing opportunities to enhance capital flow.

Also, it will create employment opportunities in different

fields and improve the technical skills of the workforce;

and lastly, it will promote the development of related

services and manufacturing.

Number of airline routes from Hong Kong Airport to Mainland China in 2018

Beijing Jinjiang Tianjin

Changchun Kaohsiung Wenzhou

Changsha Kunming Wuhan

Chengdu Meixian Wuxi

Chongqing Nanchang Wuyishan

Dalian Nanjing Xiamen

Datong Nanning Xian

Dunhuang Ningbo Xuzhou

Fuzhou Qingdao Yancheng

Guangzhou Sanya Yangzhou

Guilin Shanghai / Hongqiao Yantai

Guiyang Shanghai / Pudong Yinchuan

Haikou Shenyang Yiwu

Hangzhou Shijiazhuang Yuncheng

Harbin Taichung Zhangjiajie

Hohhot Tainan Zhanjiang

Hualien Taipei Zhengzhou

Jinan Taiyuan

There are 53 routes from Hong Kong Airport to Mainland. The specific route destinations are as follows:



Collaboration of flag carrier airlines will optimise the allocation of aviation resources

The three major airport hubs in GBA are internationally renowned. Each flag carrier may compete with

each other, yet it is inevitable they build an in-depth collaboration within the industry. International and

domestic intermodal transportation calls for stronger collaboration between airlines to achieve higher

efficiency and convenience. The increase in passenger and cargo capacity will be essential to the

economic growth of the GBA as well as the business expansion of the airlines.

11

PwC’s point of view：

Passenger and cargo throughput at Hong Kong International Airport in 2018

Region: Hong Kong Special Administrative Region of China

Frequency: Year-end December

Source: Civil Aviation Department

427,766 units

Departure &

landing

5017,854 tons

Air Cargo

74,359,829

person

Passenger Traffic



4. Achieve efficient allocation of aviation resources through a comprehensive transportation system

12



4. Achieve efficient allocation of aviation resources through a comprehensive transportation system

Hong Kong International Airport has the most international destinations among the three major airport hubs in the Greater Bay Area, while Guangzhou Baiyun International Airport and Bao’an International Airport have a route network essentially covering the entire country. Under the overall development plan of the Greater Bay Area, the collaboration and coordination between the three airport hubs will further enhance the connectivity between China and the rest of the world. The continuous development of the transportation system in the GBA through highways, high-speed rail, shipping, cross-sea traffic ways, aviation and ferries also foster connections between cities and add to the convenience of transportation in the region. Passenger and cargo flow can be effectively directed to international destinations through airports in Hong Kong, Shenzhen, and Macao, while channeling more international arrivals to Mainland China via the GBA aviation hub. Hong Kong will strengthen its role as an international gateway; Baiyun and Bao'an Airports can capitalise on their high domestic coverage to cater to routes going to broader destinations in China.

The building of joint aviation hubs can enhance occupation rate and utilisation of flights, thereby avoiding duplication of international and domestic routes run by individual each flag carrier airlines. The most optimal aviation resource allocation can be realised with the coordinated, centralised planning of land-air-water transportation resources within the GBA.

Highways and cross-sea traffic form an extensive land transportation system that connects different townships, cities and provinces in the GBA, enabling direct cross-border bus services to and from the three airport hubs. The expanding coverage of high-speed rails and rail transits, coupled with the innovative use of juxtaposed border controls will improve the efficiency of land-air transportation and enhance the development of a comprehensive transportation system.

13

Accelerate the development of a comprehensive transportation system to seamlessly connect

the GBA aviation network

Since its economic reform and opening-up 40 years ago, China’s general aviation industry is still in its initial stage. Given the fierce competition in the global aviation industry, it is imperative to create a high-speed transportation network system – with a seamless connection between destinations and zero-distance transfers as a foundation to further integrate the general aviation industry into the GBA transportation system.

The "Key Construction Project Plan in Guangdong Province 2019" passed by Guangdong Province recently has mandated measures with immediate impact, including investment of more than RMB 10 billion in nine general aviation projects. The General Aviation Network will promote high-quality development of air transport in the GBA, making it one of the most competitive transportation networks in the area.

PwC’s point of view：

Source: http://www.gd.gov.cn/zwgk/sjfb/sjkx/content/post_2600703.html

The total operation mileage of

Guangdong Railway reached

4,630km in 2018, 8.3 times that of

1949.

The total mileage of high-speed rail

hit 2025 km, with an average annual

increase of 23.1% since it started

operations in 2009.

2018 high-speed rail mileage in Guangdong Province



5. Logistics capacity as a growth enabler for aviation leasing

14



5. Logistics capacity as a growth enabler for aviation leasing

According to the statistics from the Civil Aviation Administration, airlines in Mainland China (excluding Hong Kong, Macao and Taiwan) purchased a total of 426 aircrafts in 2018, of which 72 were bought by China Southern Airlines and 13 by Shenzhen Airlines. In addition, five passenger aircrafts went to Donghai Airlines and 9 Air, and 11 cargo aircrafts to SF and Longhao. The figures show that 23% of the total new fleets are snapped up by airlines in the Greater Bay Area.

Aircrafts are the core operating assets of airlines and account for their largest proportion of capital investment. In order to maintain the timeliness of fleet replacement and ease the pressure of capital flow, aircraft leasing has been widely adopted by domestic airlines. At present, the lease penetration rate of China's commercial fleet is close to the world average of 40%. From the asset owner’s perspective, commercial aircraft has a high degree of global liquidity – priced and traded in USD, with a stable lease return and a high value preservation rate. Therefore aviation leasing has attracted investors from different backgrounds worldwide. With the incentive of FTZ / FTA tax and business policies in the China Free Trade Zone, the bonded aircraft leasing industry has flourished since 2008. Under the special bonded supervision system of “domestic customs clearance”, airlines benefit greatly from relieved pressure on taxation for airlines and hence encouraged the development of the aviation leasing industry.

Guangzhou Nansha Free Trade Zone has an outstanding track record in the Greater Bay Area bonded aircraft leasing industry. More than 120 commercial aircrafts and massive bonded aviation materials were bought in the Guangzhou Nansha FTZ within 5 years..

The aircraft leasing industry in Nanshan took off at a much later time in 2015 compared to other domestic bonded airplane leasing markets such as Dongjiang in Tianjin, Shanghai and Xiamen. Yet it has demonstrated success through innovation by leveraging the export oriented economy of the GBA and tax bond advantages. The government of Nansha District has engaged customs, foreign administration, finance, taxation and other management units to co-create a friendly business environment featuring a series of supportive measures to attract and support aircraft leasing businesses.

The Aircraft Leasing Tax Regime in Hong Kong was introduced in 2017 providing some of the world's best tax advantages for the development of cross-border aircraft leasing. Hong Kong as an international financial centre also contributes to the development of the aviation industry in the Greater Bay Area. In the first half of 2019, the cross-border aircraft financing structure was implemented in the Nansha Free Trade Zone, successfully connecting overseas lessors with the domestic free trade zone through Hong Kong. Domestic airlines also acquire foreign logistics capacity through leasing while enjoying tax concessions in Guangdong and Hong Kong. In addition, homebased airlines in the Greater Bay Area, in their capacity as aircraft operators, also play a decisive role in the development of the aircraft leasing industry. The respective authories in Guangdong and Hong Kong are committed to researching on innovative policy breakthroughs to support the long-term sustainable growth of the aviation industry.

15

Boeing forecast commercial aircraft demand of more than 40,000 new

planes for the next 20 years, with China taking 20% of the pie. As a

leading region of the country’s economic growth, the GBA is also the

headquarters of many large airlines and hence occupying a leading

market share of the aviation capacity.



From the investor’s perspective, seizing market opportunity creates competitive advantages.

The aviation leasing tax systems in Nansha and Hong Kong are well constructed, bringing

innovation to the cross-border aviation leasing business. GBA entered into the aviation

leasing business much later than Ireland and Dongjiang in Tianjin and yet it is showing a

promising growth in the business. Investment entities such as aircraft leasing companies,

aviation industry funds, aircraft investment banks, and asset management companies will

benefit from a competitive tax regime and accessibility to global trading brought by the GBA.

PwC’s point of view

Seize the opportunities of growing aviation

cluster and invest in aviation leasing in GBA

16



ConclusionAs an integrated hub of manufacturing,

technology and financial services, the aviation

industry in the GBA shows capability,

competitiveness as well as a global network.

The industry has huge sustainable potential and

essential qualities under the economic

foundation of the Greater Bay Area – ten

airports, more than ten flag carrier airlines, over

a thousand aircrafts, and a population of over

70 million with a GDP per capita exceeding

USD20,000.

The Outline Development Plan for the

Guangdong-Hong Kong-Macao Greater Bay

Area emphasises concrete strategies to develop

the aviation industry, such as enhancing air

traffic management capacity, promoting

multimodal transport code sharing and

developing cross-border helicopter services.

The further expansion of domestic and

international aviation networks would be crucial.

17

China has enormous market opportunities and

favourable policy environment. With the

strategic planning of the GBA, we believe there

will be huge potential in the coming years in the

areas of airport infrastructure, transportation

system, aviation leasing and logistic capacity.

With continuous improvement in resources

utilization, the industry is bracing for a brand

new chapter in the history of aviation

development.


Opportunities and market potentials for the aviation industry 18

Contact us

Thomas Leung

Mainland China and Hong Kong

Managing Partner

PwC China

+86 (10) 6533 2838 /

+852 2289 8288

[email protected]

Elton Yeung

Strategy and Innovation Leader

PwC China

+86 (10) 6533 8008 /

+852 2289 8008

[email protected]

Johnny Lau

Chief Consultant

PwC Hong Kong

+852 2289 5670

[email protected]

Loretta Fong

Greater Bay Area Taskforce

Hong Kong Customer Relationship Partner

PwC Hong Kong

+852 2289 1314

[email protected]

Victor Cui

Senior Manager

PwC China

+86 755 8261 8875

[email protected]

Clarence Leung

Partner

PwC Hong Kong

+852 2289 3599

[email protected]



This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2020 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the Hong Kong member firm, and may sometimes refer to the PwC

network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. PMS-000752

soaring to new heights in the greater bay area

Documents