Pricey export credit funding will not lure banks back: sources

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A call for more commercial debt financing, which is anticipated under the new Aircraft Sector Understanding (ASU), will not see the return of banks that retreated from the sector in recent years, say sources.

"Banks require a full cycle to purge and cleanse and many of those that left or retreated will stay put," says a financier. "Some of these banks dabbled in aviation financing and this was way beyond their expertise, so there is no going back. Lessons learned."

A lessor source agrees, adding: "Those banks that pulled back or disappeared are repairing their balance sheets and are getting their capital in order. Leasing companies will help fill any void especially with pricier export credit financing."

Upfront fees on loans under the existing 2007 ASU range from 4% to 7.5%, depending on the credit rating of the customer. Under the revised ASU, which comes into full effect in 2013, the most creditworthy will pay 7.72% upfront while the lowest investment grade carrier will pay 14.74%.

Leasing companies also rely on commercial debt but the sources anticipate funding will not be a problem, even with fewer financiers in the market.

"Remember, many banks prefer to bankroll a leasing company as opposed to an airline. Also, the capital markets are proving a good source of funding for lessors as well as the airlines," says the financier source.