Boeing’s Current Aircraft Finance Market Outlook, released at the end of 2018, paints an upbeat picture of aircraft financing for 2019, with the aviation industry’s resilience in the face of oil price headwinds and the rising US interest rate environment driving demand for new planes.
2018 was a record year for both US aircraft manufacturer Boeing and its European counterpart Airbus, which delivered 806 and 800 commercial planes respectively. Boeing says it expects the global commercial airplane fleet to double in 20 years, and forecasts about US$143bn in deliveries during 2019 by major manufacturers, with potential to grow to more than US$180bn by 2023.
Last year also saw the expansion of global participation in aircraft financing, with strong industry fundamentals attracting more investment in new deliveries.
GTR speaks to Tim Myers, president of Boeing Capital Corporation, about what aircraft financing will look like this year, and whether these strong fundamentals will hold out against an increasingly turbulent global economic backdrop.
GTR: The US Export-Import Bank (Exim) was once a significant supporter of Boeing exports. What impact is its withdrawal from the market having on aircraft finance, and how can that gap be filled?
Myers: The US Export-Import Bank has been – and is – a crucial source of financing for our customers in the past and is especially important when commercial financing is not available or in challenging market times. While healthy market conditions have enabled our customers to find alternative financing arrangements, nothing can replace US Exim for customers with few commercial alternatives and in times of market stress.
Additionally, it creates a level playing field with our competition as other manufacturers have access to their domestic credit agencies. Exim’s absence remains a long-term competitive disadvantage for American-made airplanes and aerospace suppliers as our current and emerging competitors continue to offer customers access to their own export credit agencies.
In regards to how Boeing is ‘filling the gap’, as part of our customer commitment, Boeing Capital works with commercial banks, capital markets as well as global export credit agencies around the world to ensure efficient financing is available for customers who purchase our products.
GTR: Is the Aviation Finance Insurance Consortium (AFIC) the answer or do more creative solutions need to be found?
Myers: Customers decide which financing options best support their aircraft purchases but having a variety of different sources allows customers to find the most competitive option and what solutions work right for them. New innovations that provide additional alternatives, reduce risk or other value are always welcome.
As mentioned previously, nothing can replace US Exim. In all cases, the amount of financing provided by AFIC would be far less than what Exim provides. AFIC and other new financing options for Boeing customers are intended to complement what Exim does, but cannot replace it, especially if commercial financing market conditions decline.
GTR: With regard to first-time entrants to the aviation finance market, where do they come from and what sort of structures are you seeing?
Myers: Across the board, we continue to see interest in aircraft financing in both the traditional markets as well as new markets like insurance risk capital. There also continues to be growing interest across the globe, with a particular rise recently in Asia.
We are also seeing growth by more passive funding sources, such as large pension and sovereign wealth funds, as well as junior/mezzanine debt which continues to be driven by a growing understanding of aviation’s strong fundamentals, growth potential, attractive returns and the risk reducing strength of the underlying aircraft assets.
Additionally, we see opportunities for banks to continue to diversify their businesses by financing airlines and lessors more globally outside of their typical regions and by exploring beyond financing airplane deliveries only and also financing pre-delivery payments.
GTR: Is there a risk trade tensions between the US and China could affect aircraft finance availability?
Myers: In Boeing’s 2019 Current Aircraft Finance Market Outlook, we are predicting another year of stable growth and funding diversification. While we continue to monitor the geopolitical environment, to date we have not seen a material impact to aircraft financing.