Record Backlog Can Survive New Credit Crunch, Says Airbus

 - January 23, 2012, 5:59 PM
Debt exposure by French banks, among others, has raised concerns about dwindling capital sources for airliner transactions.

Starting 2012 with a record backlog of airliner orders, Airbus remains unconcerned that fall-out from anticipated capital exposure by banks to Europe’s debt crisis could undermine its position.

“For 2012 about half the aircraft on order are already committed in terms of financing, so production for the first half of the year is locked in and a good proportion is locked in for the second half too,” said John Leahy, the European airframer’s COO for customers, at a January 17 press conference. “Some French banks are having difficulties raising dollars and the market is tight, but we think we can get through it.”

Leahy pointed to financing for the 534 aircraft Airbus delivered last year as evidence that a balanced spread of capital sources used by its customers will mitigate the risk of exposure to a new credit crunch. Last year, customer debt financing backed 32 percent of deliveries, 26 percent came from export credit agencies, 24 percent came from cash generated from airline operations, 17 percent of deals involved sale and leaseback and just 1 percent of financing came from the manufacturer itself. Overall, lessors provided fully 40 percent of all finance for Airbus deliveries last year. In 2011, almost one-third of all Airbus deliveries went to airlines in the Asia-Pacific region. The Bank of China has established itself as one of the top seven lessors in terms of volume of Airbus business transacted last year.

Overall, one of Airbus’s main challenges for 2012 centers on its ability to accelerate production rates more efficiently so as to boost profitability at parent group EADS. Airbus president and CEO Tom Enders acknowledged that the airframer grappled with supply-chain problems in 2011 and that the situation could continue this year, although he said efficiency does seem to be improving on the A380 production line.

At the same time, the Airbus engineering team seeks to recover from setbacks on the development of the new A350XWB widebody, which forced the company last November to delay a planned first flight from late 2012 to the first quarter of 2013. “We have run into some problems with key elements such as structures, so we have decided to go a little slower,” said Enders. “One of the big lessons from the A380 is that if you rush an immature aircraft into assembly then you set yourself up for disaster.”