Business Summary

Finance Lease refers to a transaction in which the lessor enters into a supply contract with the third party ( supplier ) as per specifications provided by thelessee; based on the contract, the lessor acquires the factory, capital goods or other equipment ( hereinafter referred to as equipment ) according to the terms and conditions in favor of thelessee; and, the lessor enters into a leasing agreement with the lessee ( the client ) to empower the lesseeto use the equipment on the condition that the lesseepays rent.

Finance Lease has the following characteristics:

1.Finance Lease is a unique trilateral trade involving at least three parties ---- the lessor, the lesseeand the supplier ---- and at least two contracts ---- the sales contract and the leasing contract. The three parties correlates with each other and the two contracts restrains each other.

2.The lessee chooses by himself the equipment to be rented. The lessor is only engaged in facilitating financing according to the needs of the client as well as in purchasing equipment and does not shoulder any responsibility for equipment deficiency and postponed delivery and has no obligation to maintain equipment. The lessee may not be in arrears with the rent or refuse to pay the rent on this account.

3.The payoff of the full amount, that is, the lessor only rents the equipment to a particular client within the basic lease term and the total rent received by the lessor from the client should be equivalent to the entire investment in the leasing transaction plus profit or, in accordance with the standards of the lessor??s country concerning finance lease, the total rent should be the equivalent of a certain proportion of the total investment, say, 80%. In other words, the lessor can be able to take back all or most of the investment in the transaction in one business.

4.For the lessee, the finance lease belongs in the headings of the balance sheet and the leased equipment should be reflected in the balance sheet of the lessee.Therefore, it is the lessee who records depreciation through calculation. Expenses arising from the insurance, maintenance and overhauling of the equipment and the obsolete risk will all be borne and undertaken by the lessee.

5.Ownership of the equipment separates long from the right of use. Ownership of the equipment legally belongs to the lessor and the right of use of the equipment belongs to the lessee economically.

6.When the basic lease term ends up, the lessee has usually three options of purchase, continued lease or throwing of the lease of the equipment.

7.Non-breach of the contract. For the lessee, the leased equipment are chosen by the lessee himself according to his own needs. As a result, the lessee may not terminate the contract ahead of schedule by making it a condition that the equipment be returned. As far as the lessor is concerned, since the equipment is a purchased product, he may not raise the rent on account of the price increase in the market. All in all, under average circumstances, both parties have no right to terminate the contract within the lease term.

Business Assortment

At present, leasing business and the related business conducted by the Bank of China mainly include Finance Lease Guarantee for Aircraft.

Finance Lease Guarantee for Aircraft refers to a leasing method with double function of both financing and providing properties, in which the lessor buys aircraft selected by the lessee ( airline ), enjoys ownership of the aircraft and leases the aircraft to the lessee for the use upon consideration within a certain period of time. When the lease term expires, the lessee can continue to lease, or, according to market economy price or fixed price, he can take precedence in buying the aircraft or, according to conditions prescribed, return the aircraft to the lessor.
There are many practices in finance lease. The commonly adopted practices include Investment Tax Reduction Lever Leasing, Finance Lease based on British and American export credit and the Finance Lease based on ordinary commercial loans.

The amount is large and the term is long in aircraft leasing. In Finance Lease business, the foreign accommodator, when offering finance, requires two guarantees ---- guarantee by the Bank of China and the mortgage for aircraft.

Applicant

Applicant for aircraft leasing guarantee business should be airlines registered within the territory of the People??s Republic of China.

Qualifications for Application

1.The applicant must bear an Enterprise Business License issued by the industrial and commercial administrative departments.

2.The applicant must bear a Permit for Loan verified and issued by the Bank of China.

3.There should be a guarantee for the repayment of the rent.

4.The enterprise should have prominent economic benefits and good social effects.

Applying Procedures

1.The airline should submit a written application for the aircraft to be imported for lease to the business department of the Bank of China. Model number, number of the aircraft, amount, delivery time and other contents demanded by the business department of the Bank of China should be clearly stated in the written application. And the following documents and materials should also be supplied:

(1) Documents of the State Planning Commission of China approving the import of aircraft by means of leasing;

(2) Documents of the Civil Aviation Administration of China allocating aircraft to the airline;

(3) An introduction to the airline;

(4) Financial Statements of the airline for the recent three years;

(5) Financial measurement and calculation of the import of aircraft;

(6) Unconditional and irrevocable counter-guarantee commitment provided by domestic counter-guarantee units to the Bank of China;

(7) Documents that speak well for the economic strength of the domestic counter-guarantee units, such as the general introduction to the counter-guarantee units, the financial statements for the recent three years, etc.;

(8) An introduction to the financing set-up ( methods for finance lease ) or to the leasing set-up ( operating lease );

(9) An introduction to the person who arranges finance for the lease of the aircraft ( methods for finance lease ).

2.In finance lease business, in order to control the financing cost and to defend interests of the Bank of China, business department of the Bank may assign personnel to participate in the selection of the financing plan for each aircraft and in the financing arrangement;

3.The project can be put under examination and review right after the fulfillment of the above-mentioned work.