Until now, aircraft leasing has been largely funded through the banking system. Most equipment leasing deals are either written by banks, or funded largely from banking facilities provided to non-bank lessors. Recent changes to the regulatory requirements have the potential to fundamentally alter this historical relationship. PwC’s Ronan Doyle writes about the potential impact of Basel III capital requirements on the aircraft leasing industry.
Just published data from Airbus and Boeing shows that orders for widebody aircraft have slowed sharply during the first quarter of 2012. These planes often cost more than twice as much as narrowbody jets and are key elements in OEMs' orderbooks.
Airline and Lessor Financing and Development
There has been a flurry of Ex-Im financing in recent weeks, with Lion Air issuing asset backed Ex-Im guaranteed bonds worth $138 million with a record low coupon of under two per cent, a first for an Asian carrier, and Avolon and GOL securing Ex-Im loan guarantees. There has also been good news this month for struggling Indian carriers as the Indian Government builds on its plans to open up to $1 billion in external commercial borrowing lines (ECBs).
A battle unfolding in the US over the future of the Export Import (Ex-Im) Bank goes to the heart of global competition among manufacturing giants. The outcome of a dispute between opponents and supporters of Ex-Im could tilt the balance between the largest global OEMs, writes Joe Gill.
Aviation Finance Vol. 2 No.9
The emerging 'self originated debt model' in aircraft finance, as Ronan Doyle terms it in this issue of Aviation Finance, will be subject to important environmental shifts, notably capital standards, as dictated by Basel III, for example, and as Ernst & Young's aviation sector chief, David Dickson, points out in his interview, also in this issue, the impact of the global convergence of accounting standards.
'With three generations of planes out there, anyone buying classics has a potential greater residual risk'
David Dickson, the head of audit for the aviation industry at Ernst and Young, a department which audits 20 of the top 30 airlines in the world, speaks to Aviation Finance about the major accounting concerns for lessors and airlines. He highlights the management of residual values as a primary consideration. On the issue of the compatibility of accounting standards, industry bodies are pushing for the inclusion of leasing assets on balance sheets, but Dickson says, 'this is not as big a deal for airlines.'
In November last year Aviation Finance interviewed John Slattery, head of sales finance, lessor sales and asset management at Embraer, in which he discussed the firm's focus on delivering a focused product for a middle market and described the sale of 1,000 E-Jets to customers across the globe.
Lessor Trading Results
Quarterly updates from five leading aircraft leasing companies, AerCap, Avolon, GECAS, CIT and RBSA, reveal the continued high level of activity in the sector. Despite economic worries in Europe, financing complexity in commercial lending for aviation and evidence of weak pricing in certain aircraft, the lessors are energetically managing their portfolios to minimise risk and exploit opportunities.