More or cheaper ECA support will not fix funding gap: banker

London
Source: Flightglobal.com
This story is sourced from Flightglobal.com

An increase in export credit support and a delay in the aircraft sector understanding (ASU) accord would do little to change the financing gap facing the industry, said a financer.

"The problem is not the cost of money, it is whether the funds will be available at all. If the export credit agencies increase their cover and the ASU rules are pushed out, or changed, is irrelevant," said the source.

"The funding needs to be available in the first place to do these deals. This is a question of liquidity."

ECAs, according to Boeing, are tipped to remain the single biggest funder to the industry at 30%, or $29 billion, in 2012.

ECA guarantees cover 85% of an aircraft financing, but a further 15% needs to come from the airline or the commercial bank market "so even if ECAs pour in more support, or make it cheaper, the problem of funding still remains."

The new ASU deal came into force in February, but will not take full effect until 2013 when grandfather clauses run out.

ECA-supported deals have been available to airlines and lessors for as little as 25 basis points - a quarter of a percent - above the London interbank offered rate (Libor) for US Ex-Import Bank deals, and under 50 basis points for European transactions.

Upfront fees on loans under the 2007 ASU range from 4% to 7.5%, depending on the credit rating of the customer.

Under the revised ASU, even the most creditworthy will pay 7.72% upfront. Alternatively, they could pay Libor plus 137 basis points yearly over the typical 12-year term.