At this stage, is it true that aviation finance is your divisionÆs main area of growth in Asia?
ItÆs our bread and butter business and we are probably the number one in terms of helping new start-ups û such as Oasis Airlines. We financed their first two planes. WeÆve also been involved with Air Asia in Malaysia and Lion Air in Indonesia.
How do you see the outlook for the aviation sector in 2008?
Our view is that it will be another good year, but half way through this year we will probably start to see the early signs of a dip. You are seeing more capacity coming in with the new aircraft ordered two or three years ago. And there is more capacity due to aggressive expansion by the low cost airlines. It will be interesting to see the extent to which some of the private new entrants will find they need to tie up with companies in other countries in order to defray some of their costs. It can be brutal for start-ups especially with oil at over $100 a barrel.
What about consolidation in India?
ThereÆs been blood on the carpet in India for the past 18 months. There isnÆt an airline in India that makes money after costs. India has been the best example of what happens to the industry when you have a glut of capacity but you donÆt have the underlying infrastructure such as airports to actually deal with the number of seats that are in the sky. Throw in record fuel prices and you get to a situation where it becomes almost technically impossible to make a profit after costs.
What about the logistics side of your business? Where do you see good opportunities?
If you look at the average multi-national company in China, almost half of its margin is taken up by the cost of moving goods around. In Europe or the US this would be a much smaller number. As a result you have massive fragmentation. There are too many logistics providers in China. There are half a million third party logistics companies û companies which bid with their warehousing and trucking infrastructure to move goods around China for the likes of Motorola or Carrefour or HSagen-Dazs.
What are the implications of this large number of logistics companies?
ThereÆs a huge consolidation exercise shaping up that is already starting to take place in China. The other thing that it has in common with aviation is that when decent logistics companies go to the market, their price-to-earnings valuations are about 25-30 times. I think everyone realises that logistics in China is an enormous opportunity. There is this huge middle class that is becoming more consumer driven, but there isnÆt the transport backbone in the country that can deal with the demand for consumer goods to be delivered from wherever they are manufactured to where they are bought. A good example is cold storage. ItÆs a niche logistics area, which has good margins. But cold storage transportation in China is basic. So thatÆs an area where we are looking to help companies.
So what role is Nordbank looking to play in this business?
We advise international logistics companies on which up and coming logistics companies are worth acquiring. One of the nice things about logistics as a sector compared with aviation or rail is that it is much freer from political interference. Under the WTO, logistics businesses can be 100% owned by foreign entities.
Do you see logistics becoming a large part of your business?
WeÆre hopeful that say in the next 3-5 years it will be a bigger share of our business along with ports and airports. Trade accounts for about 25% of the worldÆs economy but over the next 20 years most economists expect this to increase to a third. India and China have flipped around the axis of world trade. So ports for us are a big business. Take Vietnam: it's got a coastline of almost 2,000 kilometres and has enormous potential. But today I donÆt think there is a port in Vietnam where a ship of 100,000 deadweight tonnes can dock. ThereÆs a huge amount of investment going on by big international port operators such as Dubai Ports World, and SSA Marine, the US company. Similarly you are seeing big firms like PSA and Hutchison Ports investing in India.
How would you summarise your business in Asia?
Our business is almost tailor-made for Asia. The continent is undergoing huge growth. This is evident in the statistics for any transport or infrastructure metric: whether it is passengers travelling on planes, cargo on ships, throughput of containers through ports or people travelling through airports. For us it is about being involved in financing or providing advice on equity opportunities to companies all along that chain, whether it is buying aircraft, investing in airports or looking to buy a logistics business. All these activities have got one thing in common û the movement of people and commodities - thatÆs the bankÆs DNA. ThatÆs why we are so enthusiastic about the region.
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