Airlines that rely on European banks to finance aircraft purchases will have to find alternative backing for their deals as the debt crisis intensifies this year, US airline executives said on Tuesday.
"While it may take a little time, there will be some institution somewhere in the world that will step in because aircraft as collateral are among the most attractive type of collateral you can lend against," said Gerry Laderman, senior vice president and treasurer of United Continental, the parent of United Airlines.
Speaking on a panel hosted by the International Society of Transport Aircraft Trading, Laderman said it is disappointing to see a prominent financing avenue impaired. He said he was hopeful an alternative would emerge.
"Hopefully, more institutions will see that, and we'll have some substitute for the European banks that have sort of shut down their aviation lending practice," Laderman said.
United this month said it would finance part of its purchase of 787 Dreamliners and other aircraft with USD$892 million in bonds at record-low interest rates.
The debt crisis in Europe, raging for more than two years now, has made it difficult for some countries in the euro zone to refinance their government debt without third-party help.
The region's banks have been shrinking their assets in efforts to repair the damage, and are looking to shore up their balance sheets against future shocks.
The crisis has had far-reaching effects, cutting earnings of companies worldwide and increasing uncertainty in financial markets.
Tom Weir, treasurer of US Airways, said his airline has long preferred European bank debt over the capital markets.
"We felt that we were a pretty heavy user of the bank debt market. And it's changed pretty significantly," he said.
Weir said US Airways relied almost exclusively on the European debt market to finance its aircraft purchases in 2008 and 2009, but a deal last year was constrained by a lack of European bank participation.
"That's continued into this year," he said. "Actually, it's worse this year."
Gravity always wins!