Shockwaves from the Great Banking Crisis of 2008 are still rattling windows in most corners of the global economy, but at least one aviation sector has, so far at least, mostly ridden out the turbulence: commercial airliner financing.

In defiance of some forecasts the lending markets look to have come up with the cash to fund aircraft deliveries scheduled for this year.

With the help of export credit agencies and some extra vendor financing from Airbus and Boeing - as well as delivery postponements and a few order cancellations - 2009 looks set to mark an all-time high for mainline airliner deliveries, with some 960 aircraft rolling out of the doors at Airbus and Boeing.

Whether 2010 deliveries are disrupted by a so-called funding gap remains to be seen, but chances are that any shortfall will at least in the first instance come down to airlines' ability to pay rather than lenders' willingness to put up cash. But one thing looks certain: the airliner leasing landscape is changing.

Today, two mega-lessors dwarf all others. GECAS, the aircraft leasing arm of finance industry giant GE Capital, and International Lease Finance, the leasing business founded by Stephen Udvar-Hazy and owned by troubled insurance behemoth AIG, own fleets of 1,000-plus aircraft. Both have grown huge with access to the relatively cheap money they could access through their parents' AAA credit ratings.

Non-core assets

But while GECAS looks solid enough, ILFC faces an uncertain future. With AIG's near-collapse and bailout by the US government, ILFC has been for sale since last year as part of AIG's plan to sell off non-core assets to raise money and pay back the US Treasury. AIG's ILFC strategy remains unclear, but it is thought that the insurer aims to hang on to the lessor in hopes of getting a better price. As of 30 June ILFC's book value was $8 billion, but had attracted bids of just half that.

Also complicating any sale is a $30 billion wave of debt coming due at ILFC, some $2 million of which is payable as early as this month. AIG would presumably have to guarantee that debt for any buyer.

AIG could hold ILFC and hope the markets buy up some of that debt, which would help it realise a more attractive price. Or, it could sell the lessor piecemeal; names linked to deals involving part of the ILFC portfolio include Hazy, who has told Flightglobal's financial news service Commercial Aviation Online that reports he was preparing to resign as head of ILFC are untrue.

Whatever the outcome of the ownership dilemma, one thing is clear - ILFC's super-competitive cost of funds is a thing of the past. Its credit ratings are tied to AIG's, and in September ratings agency Fitch gave up on notions that a sale would come along to preserve its investment-grade capital structure and downgraded ILFC to negative.

In the everybody-else category of lessors there has also been a reshuffle, with AerCap's acquisition of Genesis moving it solidly into the top tier according to a variety of measures tracked by Commercial Aviation Online.

Ignoring GECAS and ILFC, AerCap becomes the third largest lessor by fleet value at $6.1 billion, after CIT ($8.56 billion) and Babcock & Brown ($7.3 billion).

When ranked by number of aircraft owned, as opposed to owned or managed, AerCap ranks as high as fourth overall.

But AerCap's new standing may be short-lived. AWAS is on the prowl for assets and portfolios, as well as new business; according to chief executive Frank Pray the company has been building cash in preparation for acquisitions and shareholders could provide more capital. Commercial Aviation Online estimates that AWAS has a cash stockpile of more than $700-750 million.

Apart from ILFC, high-profile lessors known to be for sale include CIT Aerospace and RBS Aviation Capital. AWAS's ultimate parent, Terra Firma, had a bid for ILFC rejected by AIG.

How the leasing industry shakes out depends on the health of their customers, the airlines. Lessors have so far averted a crisis, but that could change dramatically as cash-strapped airlines face what Airbus chief salesman John Leahy has called a "difficult winter" that will inevitably lead to more aircraft cancellations and deferrals.

As one financier told Commercial Aviation Online, ILFC is not the only lessor with loan payments coming due, and new business is going to be hard to structure. As markets now stand, airlines will have to put up half the cash needed to take a new aircraft, compared to just 20% in the past. He adds: "You can't run a business putting 50% down on these financings. That's not survivable."


Source: Flight International