Jetrader - January/February 2009 - (Page 16) Given the low activity, this should not have grave near- or mid-term consequences on aircraft financing. Tax Equity Markets The relatively small cross-border tax equity market is stable and available to enhance the efficiency of financing, primarily for airlines with higher credit ratings. Airframe and Engine Manufacturers Boeing has not needed to do any direct financing for more than two years, thanks to strong support by third-party sources. Recently however, both major airframers have indicated that some manufacturer financing may be necessary to help customers with market access issues. Looking at our deliveries into 2009, we believe the financing requirements we are most likely to experience appear to be very manageable. INTERNATIONAL Aviation Services PROTECTING YOUR AIRCRAFT’S VALUE Around the World Around the Clock New Sources of Financing This sector comprises two major regions – China and the Middle East – in addition to numerous regional bank markets and sovereign wealth funds. Today, the aggregate of funding supplied by regional banks accounts for a substantial portion of total delivery financing. In China, for example, banks have been funding a significant share of the aircraft entering the country, and they are increasingly looking for opportunities outside China (see sidebar). The Middle East is in a similar position. Meanwhile, sovereign wealth funds are on par with today’s well-established mutual fund companies and will likely be an important future aircraft capital funding source. Going forward Aviation Consulting Asset and Lease Management Technical Services Main Office Memphis, TN USA +1 (901) 405-1353 www.TheLongbowGroup.com Current market conditions are clearly more challenging than what we have seen in recent years. But there are reassuring indicators as well. Aircraft were the last class of assets to feel the effects of the crisis of confidence and loss of liquidity. We expect they will be among the first to benefit from capital returning to market. Market pressures on the various funding sources will inevitably cause temporary dislocations. It may find us needing to provide some temporary or permanent customer financing on market terms. We also do not subscribe to the voices of panic that are predicting hundreds of “white tails” accumulating at the manufacturers’ doorsteps. The industry’s worst-case example was the 24 ORIX /Kawasaki A320s left stranded in the 1980s. Today, Boeing and Airbus have recognized dramatic improvements in lead times and demand management, which bode well for us navigating through uncertainty, and any suggestions to the contrary are not in keeping with the facts and history. As for speculation on tens of billions in aircraft financing shortfalls, we also do not see that occurring. We analyze each planned delivery with the aim of understanding funding at risk. This “bottom up” approach gives us confidence in what we are reporting here as compared to the external predictions we have seen. We acknowledge the challenges of higher oil prices, economic contraction, financial crisis and continued environmental regulatory pressures, and do not underestimate any one of them. We believe, however, that aviation has a balanced path forward, such that it will emerge on the other end of this unprecedented crisis stronger, more efficient and more profitable. 16 The official publication of the International Society of Transport Aircraft Trading http://www.thelongbowgroup.com
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