The recently approved new Aircraft Sector Understanding (ASU) agreement calls for an increase in Export Credit Agencies pricing. However, even with the regulatory changes, airlines could opt to finance aircraft deliveries using more ECA-guaranteed financing in the near-term.
Airbus anticipates the same level of ECA-supported transactions this year, perhaps even more than in 2010. "As ECA pricing is set to go up, an increase in the level of activity could be the reverse effect," explains Nigel Taylor, Airbus senior vice president of structured finance.
Taylor expects increased ECA activity from Chinese carriers in 2011. Air China last year returned to the ECA market for the first time since 2005. The Chinese carrier recently mandated more Airbus A320 family aircraft under ECA structures, while China Eastern and China Southern are also in the market with requests for proposals and are expected to select ECA guaranteed financing.
Airbus says the ECAs represented a third of its 2010 delivery financings, while the commercial debt market accounted for about 37%, approximately $30 billion.
Boeing forecasts ECAs will provide the bulk of financing this year, contributing to 30% of total deliveries, $23 billion. "The new ASU agreement is in place now. In essence, there is a two-year transition where we expect similar levels of ECA-backed transactions that we have seen over the past two years," comments Kostya Zolotusky, BCC capital markets managing director. However, Zolotusky anticipates ECA-supported volumes to lower from 2012-13 onwards.
In 2011, an additional $15 billion will be needed to finance commercial aircraft deliveries but Boeing Capital is repeating its assurances of a year ago that financing requirements are "manageable". Due to increased production rates, Boeing expects $77 billion sales of commercial aircraft in the large and regional jets (100-seat plus) market this year, almost a 25% increase on 2010's $62 billion. Zolotusky says: "We are staying with the view that deliveries this year are manageable as there is great appetite from financiers and the liquidity situation continues to strengthen."
The capital markets have been sources of liquidity for US carriers and lessors during the past 18 months and both Airbus and Boeing expect this trend to continue.
"There are two important products the market needs to deliver in 2011: new structures to fund operating lessors and secured deals for non-US airlines," says Zolotusky. BCC is working on "similar products" to Enhanced Equipment Trust Certificates (EETC) for non-US airlines. Zolotusky says investment banks, in the context of global access to capital markets, are exploring these structures but it depends on the legal framework as well as having customers in place.
Taylor questions the ability to structure this type of financing for non-US carriers. "There is no doubt the capital markets will further improve this year, but the question is whether non-US carriers will tap the EETC markets," he comments.
- For more on the key aircraft financing issues for 2011, read our Airline Business interactive magazine finance special
Source: Airline Business