More Competitive Financing Drives Airliner Delivery Growth

 - December 16, 2013, 10:55 AM
Deliveries of airliners such as the Boeing 787 Dreamliner taken by Belgium’s Jetairfly on December 4 will increasingly be financed by a more diverse array of funding mechanisms, according to Boeing’s latest aircraft finance market forecast. (Photo: Boeing)

Airlines will continue to enjoy ready access to financing for new aircraft acquisitions, as funding sources such as bonds grow in importance as options for financial support, according to Boeing’s seventh annual aircraft finance market forecast. The report, released in London on December 10, said that while export credit agency funding will decline in significance in the coming years, the industry will see a more even balance among carriers’ use of bonds, leases and loans from banks and capital markets. One growing trend internationally involves the use of asset-backed bonds called enhanced equipment trust certificates. Boeing expects capital markets to account for 14 percent of all aircraft financing this year (down slightly from the 15 percent forecast in its previous report), compared with just 3 percent in 2010. It expects the rate to increase to around 22 percent next year.

“Realignment and balance are the words that best describe 2014’s aircraft financing environment,” said Kostya Zolotusky, Boeing Capital’s managing director of capital markets development and leasing. “We anticipate adequate financing at reasonable prices as the industry works to respond to balanced global customer demand and an accelerated replacement cycle resulting in higher fuel prices.” Boeing projects that 2014 will see airliner deliveries reach a total value of $112 billion.

According to Zolotusky, airlines are benefitting from the entry of new banks into the aircraft-financing sector to offer alternatives to established finance sources. Similarly, a more competitive environment in the leasing sector has developed where several new players challenge the dominance of what constituted a field of just five major participants 10 years ago. “Balanced” global air travel demand and an aircraft replacement market increasingly influenced by the economic case for operating more fuel-efficient equipment are driving those trends, said the report. Nonetheless, Boeing has also seen an increase in financing for user aircraft that previously might not have met the criterion.

“We continue to watch how global monetary policies could potentially impact aircraft finance,” concluded Zolotusky. “However, we believe the industry is well positioned for the outcomes of inflation, higher interest rates or a combination of both. Asset portfolios are excellent inflation hedges and current all-in aircraft financing costs are at historical lows.”