Jetrader - March/April 2013 - 25

He went on to characterize the aircraft
ﬁnance market as diverse but with wellunderstood operating norms despite its
global reach. “It’s tried and true. If you
invest in it thoughtfully and with the beneﬁt
of experience, you have a pretty predictable
outcome and predictable rates of return that
are commensurate with the risk, some might
say a little better than the low risk would
justify,” Cave said. “This is attractive to a
broad spectrum of investors, not a narrow
one. All that adds up to say aircraft ﬁnance
is a growth market that allows for new
entrants and structures without disruptions
or crowding out. It’s a good time to be in,
to grow portfolios or get involved.”

Elements of the Thesis
Boeing’s longtime message to ﬁnanciers
and investors has been that commercial
aircraft are a great investment opportunity
and that the company’s airplane products
deliver better value at lower risk to buyers. In an effort to put hard data behind
that belief, the company is embarking on
a deep “dive” into what it sees as the four
key elements that drive aircraft investment
(see Chart 1: Aircraft Investment Thesis).

by higher fuel costs. “With the recent fuel
price spike, the aircraft replacement cycle
is accelerated, and the demand is genuine,”
Zolotusky said.

The Aircraft Finance Markets
As Boeing reported in its 2013 forecast
for global aircraft ﬁnance conditions (see
Jetrader January/February 2013 story,
Aircraft Financing in 2013), its view of the
major ﬁnancing sources—commercial banks,
the capital markets, export credit agencies and leasing companies primarily—is
encouraging, with funding expected to
be sufﬁcient for the increasing deliveries.
“The year is shaping up to be really
interesting,” said Myers. “The leasing
companies are continuing to build their
portfolios. Export credit will become more
expensive with the new global Aircraft
Sector Understanding taking full effect,
and export credit agencies won’t necessary
fund at the kinds of levels we’ve seen of
late, and the manufacturers don’t want to
be putting a lot of equity on the table. It
adds up to creating some great opportunities in the market,” Myers said.

Among the bright spots is commercial
banking. Despite concerns over Europe’s
continuing economic woes, the continent’s
major players expect to continue in a leading role in the space. Meanwhile, the company sees the best balance yet among the
global bank players (see Chart 2: Globally
Balanced Aircraft Debt Markets, page 26)
adding to the diversity the industry is
seeing as a result of other considerations.
While it’s historically played an instrumental industry stabilizing role, export credit
use is expected to decline as a result of their
higher costs. “We expect going forward that
export credit will provide less support than
it has historically,” Zolotusky said. “Most
of that capacity is likely to be ﬁnanced in
the capital markets as their role in aircraft
ﬁnance has been expanding rapidly.”

Risk Management
While Boeing’s thesis purports that signiﬁcant investment opportunity exists, what
about the inherent risks of any investment
and what suggests they might be reasonable
in the case of jetliners?
“We believe there are two crucial areas
that must be understood and be managed

Long-Term Demand

Chart 1: Aircraft Investment Thesis

Their story on the industry’s success
begins with the fundamental history behind
why customers buy airplanes—the demand
for air travel.
“Aviation is a foundation on which
the global economy is built,” said Kostya
Zolotusky, Boeing Capital’s managing director of capital market development and its
primary spokesman. “It is this integral
economic role that is driving demand for air
travel and, in turn, aircraft.” Boeing’s latest
current outlook on commercial aviation has
the market scoped at roughly $4.5 trillion
over the next 20 years. “What’s interesting
is that demand is nicely balanced between
North America, Europe, Asia and a combination of the Middle East, Africa and Latin
America,” Zolotusky said. In addition to this
regional balance of demand, he also notes
the diversiﬁcation of airline business models
with maturation of low-cost carriers, and
the Sixth Freedom airlines, to complement
the established network operators.
The market, Zolotusky said, is an amalgam of demand for new airplanes to support
air travel growth as well as a signiﬁcant
requirement for replacement aircraft driven

For 2013, Boeing is highlighting the opportunities associated with commercial aircraft assets in its
“investment thesis” that takes a factual approach to the four areas it’s identiﬁed as key considerations
for aircraft investors—demand for aircraft products, aircraft ﬁnancing market factors, risk management
and the regulatory framework surrounding the industry. “Many of us intellectually understand the
investment attraction of the aviation space, but we need to share these insights with a whole new
set of constituents as our industry undergoes a signiﬁcant realignment of where aircraft ﬁnancing is
heading,” said Boeing executive Kostya Zolotusky of the manufacturer’s ﬁnancing and leasing unit.
(Source: Boeing Capital)

Jetrader 25
http://naylornetwork.com/ist-nxt/
Jetrader - March/April 2013

Table of Contents for the Digital Edition of Jetrader - March/April 2013
