Boeing projects in its seventh annual aircraft finance market forecast, which was released today in London, that investors and financiers will deliver “balanced liquidity” to fund what is expected to be another record global production year in 2014.
“Realignment and balance are the words that best describe 2014’s aircraft financing environment,” said Kostya Zolotusky, managing director of capital markets development and leasing at Boeing Capital, the company’s financing and leasing unit. “We anticipate adequate financing at reasonable prices as the industry works to respond to balanced global customer demand and an accelerated replacement cycle resulting from higher fuel prices.”
Boeing forecasts industry aircraft deliveries in 2014 totalling $112 billion, with 95% of that expected to be split between Boeing and Airbus.
The forecast notes the declining use by airlines of export credit agency (ECA)financing from the Export-Import Bank and the continued rapid expansion of commercial aircraft-backed bond issuances.
According to the report, these factors contributed to the financing realignment and are expected to result in an “almost even balance” among primary aircraft financing sources, including aircraft leasing companies, commercial banks, the capital markets and ECAs.
Boeing sees new bank participants “complementing” the established aircraft banks’ space with globally balanced participation.
The leasing market has evolved during the past decade from five lessors to "several times" that many today, according to the report.
Also, capital markets are continuing to expand as a source of funding for both US and international airlines as well as leasing companies.
“All of this is possible due to balanced global air travel demand and a replacement market driven by higher fuel costs and the attractiveness of new, fuel-efficient airplanes,” says Zolotusky.
While the forecast deals primarily with new aircraft financing, the report also notes signs of improvement in used aircraft financing after several years in which higher fuel prices and other economic factors disrupted the balance between the new and used jetliner markets.
“We continue to watch how global monetary policies could potentially impact aircraft finance,” Zolotusky says. “However, we believe the industry is well positioned for the outcomes of inflation, higher interest rates or a combination of both. Asset portfolios are excellent inflation hedges and current all-in aircraft financing costs are at historical lows.”