Jetrader - January/February 2009 - 13

have kept aviation as their core franchise, the demand from clients has shot up while liquidity has reduced. BG: The demand for credit has shot to an incredible level. In 2008, we will produce about 60 percent more than 2007, with growth mainly concentrated in the last four months of the year. For 2009, we expect to maintain a level of activity slightly below 2008. JA: Calyon will be able to hold an amount of debt in 2009 that will be close to 2008. However, Calyon used to underwrite very large tickets in 2008, but we believe that our underwriting capacity will reduce signiﬁcantly because the syndication markets have dried up from 30 banks to 10-15 active players. J: You both are large players in aircraft ﬁnance. Have inquiries for ﬁnancing picked up, and will your business levels next year be bigger or smaller than 2008? ECAs. How would that gap crystallize? We will see deferrals and also white tails by the dozens as it happened in the past, either because of the lack of funding or simply the disappearance of expected buyers. I do not expect a signiﬁcant contribution from manufacturers, although they will be there for the most critical and strategic cases. The need to register sales and the lack of bank liquidity will oblige them to a little more frugality compared to the last downturn. Lastly, and this is indeed a controversial point, we may see prices of new aircraft ﬂ atten or even going down—a very scary perspective that should not be ruled out. After all, in a limited funding market, this is also an adjustment factor. JA: Our estimate for ﬁnancing the new aircraft deliveries and also providing liquidity to the existing ﬂeets is showing U.S. $60-65 billion global ﬁnancing requirement for airlines and lessors. Assuming a cash contribution of U.S. $15 bllion, we need to ﬁnd around U.S. $45-50 billion. European export credit agencies and U.S. EXIM will have to write checks for up to U.S. $20 billion, which is close to double ﬁgures compared with the volume underwritten in 2008. In the most optimistic scenario, specialized aviation banks may lend up to U.S. $10-15 billion, in straight debt and/ or in combination with operating lease, German operating lease, Japanese operating lease, French tax lease, etc. The remaining U.S. $15-20 billion will have to come from sovereign banks, sovereign funds, hedge funds and hybrid capital markets structures, as well as manufacturer support. Complete Turbine Service, LLC J: With the scheduled deliveries for 2009 and 2010, will there be enough ﬁnancing around for airlines and lessors to honor their obligations? If not, what do you see as the estimate of the shortfall? Will new sources plug the gap and, if not, what will be the repercussions? BG: Clearly not. Some are fooling themselves to talk about new sources of liquidity from the Middle East and China. This is nonsense for the Middle East where the banking system is also in shock and will have to absorb the collapse of the Dubai real estate bubble. As far as China is concerned, institutions will concentrate on domestic ﬁnancing and are already reconsidering the pace of growth plan for overseas business. We have seen spectacular statements made on the size of the funding gap for ‘09, not only by bankers in search of publicity but also, not surprisingly, by U.S. investment banks. First, in all of them, considerations is only given to new deliveries, while reﬁnancing of single aircraft or portfolios are ignored—both of which are huge components of aviation bank business. Also, little is known today of what will be the added capacity provided by the Forever Forward>>> Ofﬁce: 954-764-2616 Fax: 954-764-2516 www.completeturbine.com Repair Station Certification Numbers: FAA CRS # K0WR728X / EASA.145.5555 CTS has built our reputation on Trust, Integrity, and Honesty while upholding the highest standards in professionalism and quality. Let us show you how we can provide you with Complete Turbine Service and the Satisfaction you deserve. You have my word on it. Konrad J. Walter - President/Member Jetrader 13

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Jetrader - January/February 2009

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