Article
Source: Financier Worldwide
Article
By Graham Tyler,
04.10.15
Since the financial crisis, the aviation finance market has been through much change with the initial heavy reliance on export credit financing from US Export-Import Bank (Ex Im Bank) and the other export credit agencies (ECAs), the support of which was needed at the time to ensure that there was financing available for new aircraft deliveries, shifting more recently to a focus on the capital markets and commercial debt, in relation to the latter particularly from new entrant banks in the Asian market.
Lessors and strong credit airlines have been particularly active in the bond markets in the past year or so, taking full advantage of heavy investor demand which, together with increased liquidity and new entrants to the market, has been driving margins to near record-low levels whilst reducing the role of Ex Im Bank and the ECAs and putting pressure on traditional lenders.
Less reliance on export credit financing
It was widely reported between 2009 and 2012 that approximately 30- 35 percent of new commercial aircraft deliveries were being supported by export credit financing – a significant increase from previous averages of around 20 percent. Not only that but, whereas export credit financing was traditionally intended to support exports to high risk airlines, it became increasingly available to low-risk airlines, such as Ryan air and the Middle East carriers, and at much lower margins than were then available in the commercial market.
In 2011 though, with greater liquidity coming back to the market, the Aircraft Sector Understanding (ASU), which established the terms and conditions under which countries and their manufacturers could provide financing for commercial aircraft, was modified to bring export credit financing more in line with, and to allow greater competition from, commercial markets.
The export credit agencies have always acknowledged that their remit is not to compete with the commercial markets, but to provide support for the manufacturers when commercial lenders are not able, or not willing, to accept the risks of the underlying transaction. Whilst they still provide an important role – for example, to support exports to African airlines given the perceived risk and lack of funds available from African banks – it appears that the new ASU is working as it is now more expensive than commercial debt for good credit airlines, and so the percentage of new commercial aircraft deliveries requiring their support is now much less than at its peak.