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Export credit agencies (ECAs) are increasingly being called on to support aircraft financings. The new role for ECAs is very much a product of commercial banks offering tougher terms. Shannon Manders reports.

European export credit agencies (ECAs) – the UK’s ECGD, Germany’s Euler Hermes and France’s Coface – have supported their first delivery of an Airbus A380 aircraft. The aircraft was delivered to Australia’s Qantas Airways in December 2008.

The debut ECA-backed financing for an Airbus A380 was solely arranged and provided by BNP Paribas. The deal also marks the first Australian dollar-denominated financing guaranteed by the participating ECAs.

The aircraft is the third A380 to be delivered to Qantas by Airbus, and forms part of an order of 20. Qantas will operate the aircraft on routes between Sydney and London via Singapore, and from Melbourne and Sydney to Los Angeles.

In a statement released by ECGD, the UK’s official export credit agency, the agency reports that the sterling value of the UK’s export credit agency’s guarantee was £47.6mn. The statement also confirms that ECGD has given commitment to support the UK share of a second A380 to be delivered to Qantas later this year. It also expects to be asked to consider support for further A380 deliveries to other airlines.

According to industry experts, the role of export credit agencies inaircraft financing is set to change as their popularity increases.

“Under the current circumstances, ECA support is very important for aircraft financing,” says a spokesperson from Coface.

Robert Morin, vice-president of US Ex-Im’s transportation division, says 2009 is going to be a record year for export credit agencies in terms of aircraft financing.
“It’s not unusual for there to be a spike in the demand for export credit,” he says. “What we are currently seeing is a sharper spike – but not necessarily a longer spike.”

Morin goes on to say that all ECAs are aligned in increasing the amount of their support in response to the current situation – namely the fact that the amount and types of commercial financing is being significantly reduced or withdrawn entirely.

He forecasts that this new and potentially exciting era for ECA financing could result in as much as a doubling of figures from last year.

During 2008, ECAs provided approximately US$13bn of export credit for aircraft. US Ex-Im financed US$5.5bn of this total amount, with the remainder provided by the European ECAs (ECGD, Coface, Hermes and Sace) and the Canadian ECA (EDC). During 2008, BNDES (the Brazilian ECA) did not finance any aircraft.

US Ex-Im predicts that it will support a total of US$7bn – US$9bn of aircraft financings, the rough equivalent of between 125 and 150 aircraft this fiscal year. During this period, it is expected that the entire ECA market will provide US$20bn – US$23bn of aircraft financing.

“In comparison to recent years, this would be a significant increase,” says Morin, adding that between 2002 and 2007, US Ex-Im supported an average of US$4.3bn in aircraft financings per year to support the export of an average of 73 aircraft per year.

Despite their expected record financing, Morin notes that it would be better for all ECAs if the commercial aircraft financing market were to return, as this would signal that the banking sector has regained its confidence, that the airline industry had begun to recover and that the global economy was growing. As such, although US Ex-Im is prepared to increase the number of aircraft exports it supports, its objective is simply to ensure that every aircraft that is scheduled to be exported is indeed exported, and that what should be financed is financed by either the commercial aircraft financing market or by US Ex-Im.

In addition to increasing levels of support, the nature of export credit financing is set to change, with some ECAs, including US Ex-Im, willing to fund aircraft directly. “Though, assuming the commercial banks do their job, this is not expected to be a significant part of our business,” says Morin.

Some ECAs may also consider guaranteeing capital market transactions and pre-delivery payment (PDP) deals. Morin states that although US Ex-Im has yet to close on either of these alternatives, he expects to have done both by the end of the fiscal year.

Meanwhile, Coface’s spokesperson says that although the guarantee may be helpful, it still does not entirely solve the lack of liquidity faced by the banks.

“Securitisation is one of the possibilities. ECAs have already been involved in such schemes in the past and are ready to go ahead, provided – of course – that the schemes are compatible with ECA guarantee features.

“It is true that ECAs have been told that there is also a lack in PDP financing and have been approached to see whether they could provide support,” says the French ECA’s representative.

However, Coface is still reviewing the possibility of PDP deals, and no decision has been taken yet.