Higher pricing on export credit agency (ECA) financings under the new Aircraft Sector Understanding (ASU) could benefit operating lessors, but hurt airlines, according to speakers at the International Society of Transport Aircraft Trading conference in Rome today.
"We clearly miss the old system, as it worked for certain manufacturers and airlines but for some constituents it did not work, so these issues needed to be addressed," said Kostya Zolotusky, managing director capital markets development, Boeing Capital Corporation.
Zolotusky says a lot of direction is still needed regarding the new ASU. "There are a lot unanswered questions such as: can you finance the fees? These issues need to be resolved."
The new ASU deal came into force in February, but will not take full effect until 2013 when grandfather clauses run out.
No doubt changes under ASU will require airlines to put more equity into aircraft financings.
"This will see more people rent rather than buy aircraft," says Zolotusky.
Raymond Sisson, president and chief executive of AWAS agreed, adding: "We view this [ASU] as a positive trend to deal with the 'overmanufacturing' of aircraft. The move will temperate it, but won't solve the problem."
While Sisson says ASU "will drive more airlines to lessors", he admits the move "still hurts" as AWAS previously used ECA financing for its deliveries.
He also believes increased regulation will "drive more airlines to older aircraft".
Ryanair's chief financial officer and deputy chief executive officer, Howard Millar, believes ASU is bad for industry.
"Airlines will be totally screwed by this," says Millar. "This is a very bad story for the airlines and airline customers."
ECA-supported deals have been available to airlines and lessors for as little as 25 basis points - a quarter of a percent - above the London interbank offered rate (Libor) for US Ex-Import Bank deals, and under 50 basis points for European transactions.
Upfront fees on loans under the 2007 ASU range from 4% to 7.5%, depending on the credit rating of the customer.