Finance tightens as slump continues

By: Curt Epstein

February 1, 2009
Aviation Financing

As the global economy churns, the aviation finance market holds its breath. A recent report from UK-based aviation analysis firm IBA Group predicts that financing will become even more difficult to secure as the year progresses, as lenders chart a cautious course through the turmoil. “‘Keeping their powder dry’ is how a lot of them describe it, and I think the practical interpretation of that is that they’re financing existing business, and previous letters of intent that they have issued to clients, but they are perhaps not actively looking for new business,” said Mark Wooler, IBA’s head of consultancy.

“I think what’s happened is a lot of the traditional banks had quite active origination teams that were sort of knocking on the doors of the manufacturers, knocking on the doors of existing charter operators, asking ‘Can we be of assistance?” and what’s happened over the last six months is that they’ve stopped being proactive.”

Richard Aboulafia, vice president of analysis at the Virginia-based Teal Group, echoed the sentiment. “What you’ve got is people staying away from anything that might have any risk whatsoever, [lending institutions] hoarding cash. If people are unable to value risk and unable to value assets and concerned about their own financial well being, they’re not going to lend to you.”

Not everyone, however, believes that the finance market will close its doors. “We are witnessing definitely a reduced customer demand and more difficult financing conditions; there is no question about that,” said Susan Sheets, president of the National Aircraft Resale Association. “But there’s still financing capacity; there is still money available. [When] we look at bank lending we look at three criteria: the rate, probably higher now; amortization schedule, probably shorter; and down payments, with banks looking for larger amounts now.” Another change noted among lenders is a trend away from 100-percent financing, and an increased interest in customer down payments, or having them “put some skin in the game.”

One solution for customers, according to IBA, would be manufacturer-based financing. Textron Financial recently announced that it will be exiting the commercial finance business, aside from supporting financing on Textron-manufactured products. According to a company spokesperson, Textron subsidiary Cessna Finance would remain unaffected.    

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