OREANDA-NEWS. Fitch Ratings has published China-based AVIC International Leasing Co., Ltd. (AVICIL) Long-Term Issuer Default Rating (IDR) at 'BBB+' and Short-Term IDR at 'F2'. The Outlook is Stable.

AVICIL has been a subsidiary of Aviation Industry Corporation of China (AVIC) since 2007; and AVIC owned around 51% of AVICIL's shares at end-2015. AVIC and its affiliates are the only manufacturers of both military and civilian aircraft in China, which is of significant importance to China's national defence strategy. AVICIL is highly integrated with AVIC and provides captive financing services for domestic manufactured aircraft as well as the supply chain of the aviation industry.

KEY RATING DRIVERS

AVICIL's ratings are driven by the strong support from its parent AVIC, which is assessed as having high credit strength owing to its very strong linkage with the Chinese sovereign (A+/Stable). However, AVICIL mainly leases small turbo-prop regional jets, which are of limited importance to its parent currently because they account for a small share of aircraft in service in China. AVICIL's standalone financial strength is modest, reflecting its modest capitalisation and asset quality, which stem from its rapid asset growth and reliance on wholesale funding.

AVICIL shares AVIC's brand name and benefits from funding support and customer referrals from the group. AVIC has full managerial control over AVICIL, as senior management and board of directors are appointed by the group. In addition, AVIC has strong oversight over the company's strategy and financial planning.

The Stable Outlook reflects our expectation that AVICIL's operational integration with its parent, including strategy and capital management, will not change materially over the rating horizon. Thus, the Outlook is consistent with Fitch's credit views on AVIC and the Chinese sovereign.

Established in 2007, AVICIL is the only Chinese leasing company with an aircraft manufacturing background. AVICIL also uses its parent's brand name and promotes the group's civil products, such as electronic information equipment, power generating modules and machinery for various industrial sectors.

RATING SENSITIVITIES

A rating upgrade is likely if AVICIL's main product becomes more strategically important in China's aviation industry and AVIC's development of the aviation business.

A rating downgrade could result from any weakening in the linkage between AVICIL and its parent, including significant ownership dilution and reduction in AVICIL's strategic role in the group. There could be multiple ratings downgrade if the linkage was to disappear. Any changes in the ratings of AVIC and the Chinese sovereign are likely to affect AVICIL's rating to the same extent.