Bloomberg News

Airlines Seek New Financing on Europe Retreat, Planemakers Say

February 14, 2012

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Feb. 13 (Bloomberg) -- Airlines will turn to new sources of funding for plane purchases as European banks pare lending and trade rules curtail the use of government-backed loans, said Airbus SAS and Boeing Co.

“We are not facing a general shortage of financing for airlines, but we are in the period of re-orientation,” Airbus Chief Executive Officer Tom Enders told reporters today in Singapore, where he is attending an air show. Traditional sources “are more scarce than before.”

Carriers may sell more bonds and make greater use of financing from lessors and Asian lenders to pay for planes, Boeing said. Banks in Europe will probably cut lending to customers including airlines because of the region’s debt crisis and tightened regulations.

“European banks will step back a little in terms of financing this year,” Randy Tinseth, marketing vice president for Boeing’s commercial airplanes unit, said at a separate briefing. “The capital markets will play a more and more important role in financing new deliveries.”

Airlines boosted global debt sales 56 percent last year to $12 billion, according to data compiled by Bloomberg. The extra yield investors demand to hold dollar debt from airlines has dropped 140 basis points this year to 777 basis points, according to Bank of America Merrill Lynch’s U.S. High Yield Air Transportation index.

Capital Needs

As much as $90 billion will be needed to fund new plane deliveries this year, a 20 percent increase, Fitch Ratings said in December. Of that, as much as 25 percent will come from cash or equity, creating a requirement for as much as $70 billion in financing from other sources, it said.

Asian lenders are playing a greater role in aircraft financing as they expand and as European lenders retreat. Sumitomo Mitsui Financial Group Inc. last month agreed to buy Royal Bank of Scotland Group Plc’s leasing unit for about $7.3 billion. Chinese banks including Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. are also expanding leasing businesses.

“There is a lot of money around,” Enders said. “I am optimistic.”

Boeing, based in Chicago, expects the Export-Import Bank of the United States to play a decreasing role in plane-financing from next year as new rules will increase rates and prompt airlines to look at other funding sources, Tinseth said. The Ex- Im Bank provided guarantees for about 29 percent of plane purchases last year, Boeing’s financing arm said last month.

In 2013, a new Aircraft Sector Understanding will come into effect, which will govern export credit agency lending for plane purchases. Government financing has previously stoked trade disputes between the U.S. and Europe.

--With assistance from Shelley Smith in Hong Kong. Editors: Neil Denslow, Frank Longid

To contact the reporters on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net; Joyce Koh in Singapore at jkoh38@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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