As the crisis in the world's financial markets unfolds, funds are starting to dry up and are coming from fewer sources
The market is set to go through a radical change as the number of active banks in aviation finance has shrunk to about 30, down from 50 in the last downturn. The tightening market will inevitably see the airframers moving again into aircraft financing, many believe.
Martin Harris, director of asset and structure finance at HSBC, said 30 banks cannot finance the total backlog and he expects the original equipment manufacturers to step up in the future. "We will see more OEM support," he said at Commercial Aviation Online's Inside Air Finance Asia conference held last month in Hong Kong. However, Airbus and Boeing say no financing support has been committed thus far and they do not expect to step up financing support in the second half of this year.
Airbus does, however, expect further consolidation in the banking industry. It also indicates that some banks, which exited the aviation market in the last downturn, are now eyeing a return. Nicolas Chretien of Airbus Customer Finance says certain Japanese banks have recently enquired about financing aircraft and are looking at export credit products. One banker at the conference confirmed he is in talks with Japanese banks about aircraft financing, but says the focus of these banks is mainly on European major airline credits.
DVB Bank's managing director and regional head of aviation Asia-Pacific Vicente Alava-Pons says long-term players will stay in the industry but will face difficulties. "Even if some banks have not been affected by the subprime crisis, they have some issues to deal with," he explains.
Louis Douady, head of aircraft finance Asia-Pacific at Natixis Transport Finance, says banks will have problems raising the same volume in financing as in the past. "While we will continue the trend of building our portfolio, we won't be able to raise the volume as in the previous years to fill the gap created by the absence of some players."
Harris of HSBC also says there are opportunities in the marketplace. "Banks can change the way they do financing: there are true leasing opportunities and I expect banks to shift to a more export credit role," he says.
In terms of funding sources, Export Credit Agency financing is the only indicator that has remained "green or satisfactory" according to the Boeing Capital Corporation chart of capital providers over the past year. Airbus estimates ECA financing will account for 17% of this year's deliveries but anticipates ECAs will slightly increase support next year. Chretien is predicting a rise to about the 20% level.
Source: Airline Business