Aircraft Finance Industry Sees 'Gap' Falling To $2 Billion-$4 Billion In '10

Date : 03/16/2010 @ 6:11PM
Source : Dow Jones News
Stock : Aircastle Limited (AYR)
Quote : 23.93  -0.44 (-1.81%) @ 4:02PM

Aircraft Finance Industry Sees 'Gap' Falling To $2 Billion-$4 Billion In '10

Boeing (NYSE:BA)
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The commercial aircraft finance market is improving as asset values stabilize and some capital markets sources reopen, industry executives said at a conference Tuesday.

A poll of attendees at the event forecast that airlines and leasing companies still had to find between $2 billion and $4 billion from new sources to fund an estimated $60 billion in aircraft deliveries this year.

The funding gap has fallen from last year, when the exit of many banks active in the sector placed more reliance on manufacturers and government-backed export credit agencies.

Tim Myers, general manager of Aircraft Financial Services at Boeing Co.'s (BA) aircraft funding arm, said a recent $1.3 billion loan deal for International Lease Finance Corp. had lifted sentiment in the sector.

The loan, "secured by aircraft in ILFC's portfolio, found strong demand, and the offering was increased from an original deal for $750 million," Myers said in an interview.

The deal marked the first time that ILFC had accessed the capital markets since parent American International Group Inc. (AIG) was bailed out by the U.S. government.

Myers, who chaired a panel at the annual meeting of the International Society of Transport Aircraft Trading in Orlando, also said "there have been no fire sales of aircraft, as the industry had feared."

Aircraft values slumped in the wake of the global downturn in the airline industry, but there has recently been a sharp divergence between the values of newer and older equipment. Many older planes parked in the desert are not expected to return to service.

Myers' panel included Ron Wainshal, chief executive of U.S. lessor Aircastle Ltd. (AYR). Wainshal said lease values for newer used aircraft are stabilizing, and perhaps beginning to rise.

The relative optimism contrasted with concerns expressed at last year's event, where many believed there would be a funding gap of tens of billions of dollars for financing new aircraft, causing planes to go unsold in 2009. In fact, government export banks helped to fill a gap of about $10 billion.

A poll of almost 300 attendees at the 2010 event pinned the potential gap at up to $4 billion, said Myers.

While Airbus and Boeing expect to trim the level of direct funding they provide for customers this year, export credit agencies are expected to retain a profile that saw their share of deals double to around 40% last year.

The U.S. Export-Import Bank provided $8.5 billion last year, and officials have said they are prepared to match or exceed that in 2010.

While the environment has shown signs of improvement, Boeing executives remain cautious. Vice President Marketing Randy Tinseth highlighted the continued weakness of the broader leasing community, private equity firms and hedge funds.

Boeing and arch-rival Airbus are working through record order books and may even increase production.

In slides accompanying his conference presentation, Tinseth indicated that commercial banks and capital-market sources are opening up for airline borrowers, compared with a year ago.

The health of a leasing market that grew rapidly to account for as much as a third of the global airline fleet has been a particular concern for manufacturers.

For Boeing's airline customers, the outlook for profitability remains challenging, and varies widely by geographical region. European and U.S. airlines are expected to continue to lose money this year, although less than in 2009.

Boeing cited a new forecast this month from the International Air Transport Association that expects the global airline industry to lose more than $2.8 billion this year, less than the $9.4 billion loss expected for 2009. Airlines in Asia and Latin America are expected to turn a profit in 2010, as those economies lead a global economic recovery.

-By Ann Keeton, Dow Jones Newswires; 312-750-4120;


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