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Aviation History
2001
2001 - 0127.PDF
finance market estimate that as much as 40-45% of all new commercial aircraft deliver ies were financed through export credit-sup ported transactions in 2000. While this form of finance has proved an important funding tool for Airbus and Boeing to secure sales, creative developments have occurred in the commercial banking market. The last year has seen a renewed focus on developing the European capital markets to provide funds for international aircraft finance. With its many legal differences and, indeed, cultural disparities in offering a pan-European finance solution for airlines seeking finance, Europe lags behind the USA. The USA has always benefited from a private-sector airline industry, a uniform legal system and a willing ness, based on familiarity, from investors to inject funds into die sector. Nevertheless, a finance deal completed for US major Continental Airlines in November shows that the European capital markets are becoming more comfortable in international aircraft finance. The $ 176 million deal covers a number of die airline's Boeing aircraft and has been structured as securitisation. Securitised deals package a number of air craft against which securities or notes are sold to investors. Essentially, each investor holds bonds bearing a certain interest rate over a set period of time known as the term. Jose Abramovici, head of Credit Lyonnais' Parisian aerospace team, says European investors welcomed die Continental deal because it features a floating rate and not a fixed rate of interest as is typical with comparable deals done in die USA. The deal is a landmark in the securitisation market as it has largely been sold to European investors, says arranging bank Credit Lyonnais. While Continental went for a dollar-denom inated structure, reflecting most of its sales, Abramovici says die structure could be applied to a carrier with mainly Euro-denominated sales. This type of structure could pave die way for other airlines in Europe and Asia Pacific. On a technical note, die Continental deal is known as a floating-rate enhanced aircraft trust securities (FEATS) structure. For investor con fidence, the financing structure features credit ratings from die main ratings agencies. The senior tranche is considered to be special because it is pure arid not wrapped by a special ist insurance agency, as is die case in many deals. Rated AAA by Standard & Poor's and Fitch IBCA, it has a 12-year maturity, is valued at $92 million and has a coupon of 49 basis points. The subordinated tranche is rated A- by the two agencies, runs over 10 years, is valued at $84 million and features a coupon of 70 basis points. This means diat investors will get 0.49% and 0.70% respectively over an agreed bank lending rate on die amount of funds diey invest. Spanish flag carrier Iberia has played an important role in developing an investor appetite for this kind of structure in die ECAs make their support available across the board, including to first-tier carriers such as Cathay European market. Credit Lyonnais joined Tokyo Mitsubishi International and Morgan Stanley in jointly underwriting the Spanish carrier's second European enhanced equipment trust certificate (EETC) structure in Sept ember. The deal, valued at $2 00 million, helped to finance some of Iberia's 2000 delivery of Airbus A320-200s and Boeing 757-200s. OPENING THE MARKET The opening of die European investment mar kets for aircraft finance is an important devel opment in financial circles. Most US majors have tended to tap die US capital markets through EETCs - some totalling more than $700 million. But in the last quarter of 2000, the investor appetite for these kind of bond deals had slipped. Sources say that this is one of the reasons why Continental Airlines sought access to European funds. Financiers work hard to ensure that deals like these are enhanced so that diey receive invest ment-grade ratings, such as die AAA rating in the Continental FEATS deals. Without it, investors will just shy away and invest dieir funds elsewhere. Among financiers there is a split in opinion over how the European capital markets will grow. Some believe this funding source may become an alternative source of funding for the US majors when the US capital markets are depressed. Others believe diat Iberia's example will convince other carriers to follow suit. "The fact diat Europe's capital markets are becoming more receptive to ploughing in funds to aircraft finance can only be a positive step. Albeit a long-awaited one," says one senior London- based banker. • FLIGHT INTERNATIONAL 9 - 15 January 2001 33
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