UK Export Finance does not anticipate a significant change in demand for its aircraft guaranteed-financing, despite the latest warning from the International Monetary Fund about slowing global economic trade, particularly out of China.
At the end of September, the IMF warned that a slowdown in the emerging markets will mean global economic growth will be lower this year than in 2014. It also warned of a "new mediocre" outlook, which would mean low growth for a long period time.
The UK export credit agency is likely to guarantee a “similar number of aircraft transactions” this year as in 2014, or close to five aircraft deals, says Gordon Welsh, head of aerospace at UKEF, adding: “We don't expect to do vastly more or less.”
Welsh believes the events in China are “well understood” by the financial markets, however, he suggests the Middle East, with the recent liquidating of assets by Saudi Arabia, is a “wider point to look at”.
Saudi Arabia is reportedly withdrawing tens of billions of dollars from global asset managers to reduce a deficit caused by cheap oil prices.
“So, what does this mean? It means Saudi Arabia is soaking up liquidity, which they didn't have to do a year ago; however, it is way too early to say if there has been a seismic shift. It could also mean other oil countries are probably doing the same, or considering the same.”
Qatar and the United Arab Emirates are also reportedly anticipating a cash drain, with bank deposits shrinking by billions of dollars in both countries from June to July.
Welsh adds: “This is the perfect kind of scenario - where there is so much commercial appetite, but then liquidity has to be revisited. It doesn't take very much uncertainty in the world to change the appetite for export credit support from our perspective.”
On the flip side, the airline industry is clearly benefitting from $40 a barrel oil prices, he adds.
“So, you can’t really take a view one way or another on the situation as we don't see the impact hour to hour or day to day,” he says. “ Positions taken on aircraft are long-term positions, and the same on financing. I don't think many airlines would be surprised by the events of the last week, or two, as they make plans months ahead.”
Due to the sharp fall in various currencies in the emerging markets, UKEF is stepping up efforts to offer more local funding support.
In July, it added the yuan to its list of supported currencies by supporting the industry's first offshore yuan-backed loan, secured by an Airbus A330-300 for China Southern Airlines.
Welsh says UKEF can move “very quickly” to issue local currency funding as it already has a track record in doing so.
UKEF, together with its partners in France and Germany and HSBC, supported the yuan-backed financing.
The offshore version of the yuan has overtaken the euro as the second-biggest trade finance currency after the dollar, according to the export credit agency.
In September, General Electric signed an agreement with UKEF to access support of up to $12 billion - a move which could help customers in the aviation sector.
Projects currently under consideration under the memorandum of understanding are drawn largely from the energy sector; however, UKEF says "the framework could cover any of GE's lines of business, including aviation, if there is sufficient UK content".
Since the US Export Import Bank's authorisation expired on 1 July, GE has entered talks with several export credit agencies to secure financing for its customers.
Source: Cirium Dashboard