Jetrader - March/April 2011 - 14

Industry concerns during the ASU negotiations were not as much about the capabilities of the commercial markets to step up to ﬁll the larger funding shoes wore recently by the ECA as they were about ensuring a gradual transition to new rules that maintain export credit capabilities when commercial markets falter. “We were focused on ensuring a rational transition that was not disruptive for our customers, aircraft ﬁnanciers, investors and manufacturers,” Zolotusky said. In Boeing’s current 2011 look at the industry’s main funding sources (see Chart 2: Aircraft Industry Delivery Financing), ECA support is expected to remain around 30 percent, where it has operated for the past two years, before returning to more typical levels of around 20 percent. At this writing, the players involved have begun assessing the implications of the new ASU from their respective perspectives. A primary concern for Boeing was on ensuring that export credit would continue to be available as a robust “safety net” in the event of market dislocation. Changes levied on the ECA funding process should create opportunity for the commercial markets to respond to continued demand, with new participants and structures that will increase their respective market shares. “Lessors in the foreseeable future should see more demand for their operating lease products because a lot of second- and thirdtier airlines will have more constrained access to capital than what we have seen over the last decade or so,” Zolotusky reported. “There should be an aircraft lifecycle readjustment, with stronger carriers

Chart 2

Chart 2: Aircraft Industry Delivery Financing
For the commercial aviation industry overall, higher expected deliveries in 2011, driven by sustained real product demand, ﬁnds the forecast for the individual market components becoming increasingly healthy, with no identiﬁed threat from funding shortfalls. This year, export credit support will be signiﬁcant as the market adjusts to new, higher export credit pricing, marking the beginning of a transition period back to more typical ECA funding levels seen over the long term. (Graphic: Boeing)

Commercial banks, particularly those serving regional markets and those in the developed world, are likely to see a resurgence of activity resulting from expanded demand for aircraft-secured debt.

operating newer aircraft and others operating mid-life and older planes as the supply cycle adjusts to more normal conditions we’ve seen for decades.” Commercial banks, particularly those serving regional markets and those in the developed world, are likely to see a resurgence of activity resulting from expanded demand for aircraft-secured debt. “The European banks that were ‘market makers’ for the last decade and a half will have company in emerging markets where banking is starting to fund meaningful numbers of airplanes,” Zolotusky added. Boeing is expecting to see the most ﬁnancing innovation among capital market sources. As industry funding sources have returned during the disruption, the capital markets have provided the most positive surprises by their earlier-than-planned return to Enhanced Equipment Trust Certiﬁcate (EETC) business and creation of new structures like those involving Ex-Im guaranteed bonds. “We expect to see the evolution of ﬁxed income products that today ﬁnance only U.S. airlines into a global product,” said Zolotusky. “We also anticipate creation of new structures that ﬁnance lessors. We’re more likely to see something along the

lines of a hybrid between old asset-backed securities and an EETC product.” Lest export credit agencies show concern about their roles going forward, the industry sees opportunities for them related to expansion of the Cape Town Treaty, which seeks to provide aircraft investors with improved security protection for their assets operating globally. “As the Cape Town Treaty becomes more ubiquitous and commonly accepted, we believe there will be opportunities for the ECAs to strengthen the treaty’s viability by creating new products that are more like a political risk insurance instrument rather than a product loan guarantee,” Zolotusky said. ”In essence, the ECAs have an opportunity to further facilitate the evolution of Cape Town Treaty as the global aircraft ﬁnance legal framework. Governments are much better positioned to deal on an intergovernmental level than private entities.” “Overall, 2011 is shaping up to be the year of transition and expansion of participants and solutions in aircraft ﬁnance,” Zolotusky added. “We see the industry eager to address near-term requirements and shape its long-term well-being.” Thanks to Boeing for supplying editorial content for this story.

14 The ofﬁcial publication of the International Society of Transport Aircraft Trading
Jetrader - March/April 2011

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