Hawaiian and United fall behind in payments to manufacturer's leasing arm, which faces more losses if 757 line closes

Boeing Capital (BCC) has revealed the full extent of its exposure to two crisis-hit airlines which have been failing to come up with lease payments worth hundreds of millions of dollars.

United Airlines, in Chapter 11 bankruptcy protection since December last year, has fallen behind on payments on contracts totalling $586 million. The airline is the Boeing leasing arm's single largest customer, with leases worth $1.2 billion. Hawaiian Airlines, which entered Chapter 11 in March, owes $95 million of its $466 million worth of leases.

BCC's exposure to United is partly secured, it says, by 767 and 777 aircraft used as collateral, but the increasing uncertainty surrounding its contracts with Hawaiian and United has led it to write down the value of its aircraft leases by $157 million.

BCC also faces the risk of the 757 line shutting down (Flight International, 22-28 July). Boeing chief executive Phil Condit, citing the drop in orders and the forthcoming launch of the 7E7, said last month that the company had not yet decided whether to maintain the 757 line, which is now producing one aircraft a month.

The possible shutdown, and competition from the larger 737 models and the 7E7, endangers $1.2 billion worth of BCC's portfolio that is secured by 757s, the company says. Although Boeing has provided $240 million worth of guarantees to its subsidiary, a decision to drop the 757 would cause BCC heavy losses.

BCC says it is "unable to predict the likelihood or impact of such an outcome".

Other lessors are also at risk from United Airlines' crisis: GE Capital Aviation Services' exposure to United and Air Canada, also in bankruptcy protection since April, totals $4.1 billion, says the company. GECAS restructured its lease arrangements with AirCanada last month, including up to $1.4 billion in additional financing. The effect of this move on the company's exposure has not been revealed, although GECAS says that both airlines are keeping up lease payments.

Analysts are also concerned that the continuing downturn in air travel will leave lessors with significant numbers of unplaced aircraft in 2004 and 2005.

Source: Flight International