Jetrader - January/February 2009 - 12

In the airline industry, we suffer from the effect of the “normal” downturn that some of us have predicted, but the lack of liquidity is adding up an incredible level of challenge. Lessors who built aggressive growth stories to satisfy hungry capital markets or airlines with weak business plans distorted them to make more money in sale and lease back than in carrying passengers; they will die, as they have relied too much and too long on access to liquidity. Fuel price is only an accelerator and not the fundamental cause for the current stress in the industry. José Abramovici: Most of the international banks have suffered credit losses in their investment bank/capital markets activities. Given the distressed syndication market, some banks have also failed to syndicate corporate loans created to fund LBO transactions. Generally, the economic slowdown will increase the default risk of the highly leveraged companies. The bank’s equity has been hit, as well as their lending capabilities, because they need to maintain a minimum capital adequacy ratio. Banks have to comply with Basel II and have to align their capital reserves with their risk proﬁle, which has an impact on the cost of capital. Aviation is considered as high risk and high volatility industry. In their restructuring either internally or following a governmental bailout, some banks are being requested to focus on their core activities, and aviation is not always considered as core business. We have seen major European aviation banks shut down their aviation desk, and more will follow this path. The cost of long term-liquidity has substantially increased because the access of banks to long-term funding is much more expensive. Some banks borrow new money at a higher spread than their corporate clients. lower rates and capital infusions from government sources? J: There was a time when banks would not lend to each other, driving up the cost of funding for banks from available sources. Now it seems interbank rates have declined markedly, but customers report that few banks are lending. Why is that, given BG: Relevant actions from government cover the widest possible array of situation, use very different tools and trigger a wide variety of effects. Government may take control of certain institutions, provide preferred equity instruments or simply grant temporary liquidity outside the action of the central banks. RBS, Dexia, Credit Agricole/Calyon are three good examples of variations around public initiatives. The question for our industry is whether or not continuing to ﬁnance aircraft and airlines is part of the franchise that will be accepted in a limited resource environment when watchdogs from the government will have their say. For example, will the German government agree to spend taxpayer money for a Landesbank to ﬁnance Boeing aircraft in Indonesia? Will the U.K. government allow a U.K. bank to continue to grow as a lessor worldwide when domestic ﬁnancial problems are to be the key focus? For those banks still in business that don’t rely on government support and CONSULTING • Strategic Planning • Industry Forecast • Airline Planning TECHNICAL • Inspections Audits • Redeliveries Repossessions • Maintenance Cost Studies & & VALUATIONS • Aircraft Engine Values • Asset Management • BlueBooks Online Values & & The Leading Advisor to the Aviation Industry www.AVITAS.com tel.: 703.476.2300 fax: 703.860.5855 12 The ofﬁcial publication of the International Society of Transport Aircraft Trading

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Jetrader - January/February 2009

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