Capital markets remain cheap source of long-term debt: Boeing Capital

Washington DC
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The capital markets remain one of the cheapest sources of long-term aircraft financing, despite recent increases in base rates say Boeing Capital executives.

"It is a little more expensive but when you look at it from a historical perspective, you continue to see near record low all-in financing costs," says Kostya Zolotusky, managing director of capital markets, leasing and aircraft financial services at Boeing Capital, on the base rate increases at a briefing in Washington DC today.

All-in interest rates on enhanced equipment trust certificate (EETC) deals are in the range of 4% to 5% today compared to 7% to 9% historically, he says.

The yield on 10-year US treasury notes were 2.61% on 7 August, which is up more than 40% from 1.86% at the beginning of the year.

This rise resulted in the coupon on the $720.4 million senior A tranche of United Airlines 2013-1 enhanced equipment trust certificate (EETC) issue coming it at 4.3%, which represents a 40bp premium to the coupon on Hawaiian Airlines $328.3 million 2013-1 A notes that priced in May and a 35bp premium to that on US Airways $620.1 million 2013-1 A notes that priced in April.

Pricing on the United EETC still tightened to 156bp over 10-year treasuries compared to 220bp over 10-year treasuries on the $711.6 million 2012-2 A notes that priced in September 2012.

The 2013-1 A notes have an expected final distribution of August 2025.

Boeing anticipates $14.5 billion in capital markets aircraft financing activity this year, which is up from $10 billion in 2012. It also represents a 14% share of the entire aircraft financing market, up from 10% a year earlier.

New issuers, including Air Canada, British Airways and Hawaiian, are helping to buoy the market. Turkish Airlines and WestJet are also understood to be looking at entering the market.

"The EETC market is, by far, the deepest and most efficient market that exists today," says Zolotusky. "Airlines like Delta or American or United are currently borrowing money on longer tenors and at much cheaper costs than any airline in the world."