Jetrader - March/April 2010 - 15

Even if we remain cautiously optimistic with regards to the financing of new deliveries scheduled for 2010, we must not ignore or forget the massive activity that is normally evident within the used aircraft market. margin just north of 20 bps and microscopic fees—bank balance sheets are still amply available for ECA deals. Again, what is of signiﬁcance here is who the risk taker is—in this case the U.S. government—and not the ﬁnancial component of the transaction, i.e. the liquidity. For the rest of capital markets deals, indeed that extra liquidity was welcome and has probably indirectly helped to fund many PDP payments due to the manufacturers or invested equity into new deliveries. But, it beneﬁted almost exclusively the U.S. airlines, leaving some of the largest issuers with simply no more assets to pledge. Our conclusion is that—again, stressing almost exclusively for new deliveries—the ECAs have ﬁlled the funding gap that was initially anticipated due to an extraordinary increase of their commitment. If the various governments behind the ECA’s are—or should be—happy with such risk concentration in what is still a cyclical sector is a question we shall not answer here. What Can Be Said About 2010: The Figures We Know So Far! The good news is that there is a little less total value in the forecasted deliveries for this year—from $68 to $65 billion USD. (Source: DVB Research and Ascend / Does not include the regionaljet market.) Even more good news is, as already stated and analyzed by DVB more than a year ago, that there are still ample segments of the market for which raising money should not be an issue: • First-class airlines—or, if you please, the Lufthansas of this world—represent approximately $15 billion USD of the estimated delivery total. Quantitative easing (or, in English, printing money) has freed a lot of liquidity, and in the current ﬂight to quality, many banks will be delighted to compete on this market segment. The recent downward trend on pricing clearly illustrates this point. • The greater-China airlines will beneﬁt from the huge liquidity amassed by the Chinese banks, and that represents another $6 billion USD worth of aircraft. • Lastly, despite the situation in Dubai, Middle-Eastern banks will still happily fund the huge order book of the main Gulf-based entities, namely Qatar, Etihad and Emirates. This is another $3 billion USD of value that will easily be ﬁnanced. • Additionally, with regards to the operating-lease companies, any lessor employing an aircraft with one of the three airline categories above and any lessor supported by a strong parent (RBS, GECAS) should also be successful in raising senior debt. On that assumption, this is another $6 billion USD of aircraft that could be ﬁnanced. What remains is approximately $30 billion USD worth of new aircraft deliveries that do not pertain to any of the darlings of the ﬁnancial markets mentioned above and hence require ﬁnancing from the open market. This is a large amount left for emerging local banks—the new Graal (Holy Grail) for some analysts—the capital markets and the ECAs. If I Am Optimistic I would call the year 2010 “doable,” as none of the prime category issuers mentioned above are signiﬁcant consumers of export credit, and to bank on an equal commitment of ECAs for 2010 to that of 2009 is not such a ludicrous bet. At $20 billion USD, it represents two thirds of the $30 billion USD described as being, at the very least, a little problematic. With respect to the bank market, those who did not retreat in 2009 will continue to be active in 2010. On the macro front, the industry continues to weather the storm with placidity. After all, minus the few (expected) casualties—from SkyEurope to Marsans—no bank or ECA has lost money. Winter is well advanced, and the cash situation of most of the signiﬁcant players is still manageable. Hence, the logical conclusion should be for bank-credit committees/investors to continue to provide liquidity in a relaxed environment. Jetrader 15

Jetrader - March/April 2010

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