Jetrader - January/February 2012 - 10

Q&A

Bertrand Grabowski Member of DVB’s Board of Managing Directors
debt crisis on our business, but I would say it just accelerates whatever is coming from Basel III. On our side, DVB’s capital resources already meet recently discussed Basel III requirements as the Bank offers a high-quality core capital, which solely includes issued share capital and capital reserves but no hybrid capital. As to the strategic choices regarding which activity DVB wants to preserve: we are a transportation bank. Financing transportation assets is our “raison d’être” and this is supported by our shareholders. Let me further comment on the much heralded case of the French aviation banks’ funding structure which is oriented mainly on rather short-term refinancing. A review published by Barclays Capital in summer 2011 states that 60 percent of those banks’ funding structures show a maturity profile of less than six months. So clearly, once there is a confidence shock in the financial markets, it is becoming increasingly difficult for these banks to refinance themselves, and they might eventually have to withdraw from the aviation finance market as well as from the shipping finance and the project finance market. Please bear in mind, this “shock-wave scenario” is not only specific for the sovereign debt crisis but for any serious confidence loss in the global financial markets. Q: Is the aviation industry also suffering from an imbalance between high supply and weaker demand comparable to the shipping industry? A: Well, there is no excess supply in the aviation industry comparable to the prevailing oversupply in some segments of the shipping industry, which results in that significant volatility of ship values. The aviation industry itself remains a “twofold monopoly” of Boeing and Airbus. This competitive situation usually brings a bit more rational to the supply side, which is a very balancing factor. However, at the moment there is a very strong anticipation from the manufacturers that the market will grow again and, therefore, they are increasing their production rates especially for narrowbody aircraft. As a result, each month more than 40 Boeing aircraft (mainly from the B737 family) and 40 Airbus aircraft (mainly from the A320 family) come out of the supply chain in Europe and the U.S. That really is a significant number. So, are there too many aircraft? Probably yes, and in fact the relation between ordered and in-service aircraft (Western-built jets) grows steadily and was at a rat io of 39.8 percent on 14 September 2011. Of course, manufacturers state that the demand is due to rise mainly for two reasons: firstly, Asia is outgrowing the economic crisis and, secondly, there is a huge replacement need for equipment in the U.S. The average fleet age of U.S.-American airlines is about 14 years, so there is an evident demand. To what extent the actual fleet substitution in the U.S. will be commensurate with the production rate, jury is still out on that point. DVB’s opinion is in line with the UBS research, which was published in June this year, pointing out that roughly 10–15 percent of the current order book can be deemed to be “overbooking.” How is this further overhang going to be absorbed? Well, “White Tails” (i. e. aircraft produced without a buyer, sitting on the tarmac in Hamburg or Seattle) are probably excluded as export credit agencies (ECA) will always do their utmost for new aircraft to be financed. But this infl ow of new equipment mainly requires older aircraft to be decommissioned earlier than scheduled. Therefore, we cannot exclude some impact on residual value for those older aircraft, or on lease rates that go along with it.

Bertrand Grabowski, Member of DVB’s Board of Managing Directors, is inter alia responsible for the Bank’s Aviation Finance. In the following interview with Elisabeth Winter, DVB’s Manager Investor Relations, he reflects upon the challenging market environment and speaks about his discerning vision. Q: Is the sovereign debt crisis in the Eurozone and a potential U.S. dollar crunch starting to impact the aviation industry—and where does DVB stand in this scenario? A: It is clear—the sovereign debt crisis in Europe and the situation in the U.S. have an impact on the global aviation finance business. But actually the effect we are experiencing on the funding side at the moment is composed of two elements: firstly, the so-called sovereign debt crisis, and secondly, the upcoming new Basel III standards. Regarding the later and for the purpose of “keeping their house in order,” banks need to cope with this complex set of regulations—this is true for our competitors and for DVB itself. In times like these, it becomes of strategic importance to identify the most appropriate deal structures and to decide on which activity you want to privilege versus others. In that process, many banks decided that they would not put a top priority on lending activities that consume long-term U.S. dollar funding. So, yes— there is a direct impact of the sovereign

10 The official publication of the International Society of Transport Aircraft Trading


http://www.ISTAT.org

Jetrader - January/February 2012

Table of Contents for the Digital Edition of Jetrader - January/February 2012

A Message from the President
Calendar/News
Aircraft Financing Ahead
Q&A: Bertrand Grabowski
Evolution of Engine Leasing
ISTAT Closes Out 2011 in Style
Aircraft Appraisals
ISTAT Members on the Move
Aviation History
Advertiser.com/Advertiser Index
Jetrader - January/February 2012 - cover1
Jetrader - January/February 2012 - cover2
Jetrader - January/February 2012 - A Message from the President
Jetrader - January/February 2012 - 4
Jetrader - January/February 2012 - 5
Jetrader - January/February 2012 - Calendar/News
Jetrader - January/February 2012 - Aircraft Financing Ahead
Jetrader - January/February 2012 - 8
Jetrader - January/February 2012 - 9
Jetrader - January/February 2012 - Q&A: Bertrand Grabowski
Jetrader - January/February 2012 - 11
Jetrader - January/February 2012 - Evolution of Engine Leasing
Jetrader - January/February 2012 - 13
Jetrader - January/February 2012 - 14
Jetrader - January/February 2012 - ISTAT Closes Out 2011 in Style
Jetrader - January/February 2012 - 16
Jetrader - January/February 2012 - Aircraft Appraisals
Jetrader - January/February 2012 - 18
Jetrader - January/February 2012 - ISTAT Members on the Move
Jetrader - January/February 2012 - Aviation History
Jetrader - January/February 2012 - 21
Jetrader - January/February 2012 - Advertiser.com/Advertiser Index
Jetrader - January/February 2012 - cover3
Jetrader - January/February 2012 - cover4
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