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Aircraft buyers are increasingly turning to capital markets over export credit as a funding source, Boeing reveals.

“Over the last two years we’ve seen a tripling of the scale of the capital markets as a funding source for new aircraft deliveries,” Kostya Zolotusky, managing director of capital markets development and leasing for Boeing Capital Corp. tells GTR.

Boeing has particularly highlighted the Middle East because the region has increased the aircraft purchases funded with its own capital from one-fifth to two-thirds.

Export credit, on the other hand, has always been a major funding source in the industry but has now become more difficult to secure. “New premium rates and lower advance rates, for certain airlines, mean that it will cost an airline more to secure finance with ECA support,” John Meakin, managing director of export finance at JP Morgan explains to GTR.

Under the 2011 global Aircraft Sector Understanding agreement, explains Zolotusky, the cost and complexity of export credit use have increased significantly.

These increases have come from rising higher equity requirements that airlines have to provide and from rising export agency fees, which are now a multiple of historical norms. “The complexity’s much harder than it used to be,” he comments.

Capital markets are stepping up in an industry that has performed well over the last few years. Zolotusky says: “When looking at the historical performance of aircraft, whether over the last few decades or through the recent financial crisis, you’d be hard pressed to find any asset class that has done as well. As a result, the aviation sector is attracting a lot of interest, and real money.”

This growth will continue, Boeing predicts, and the industry will require more than 35,000 new airplanes over the next 20 years, at a value of US$4.8tr. The majority of these new aircraft will be required in Asia Pacific, followed by Europe, North America, Latin America and the Middle East.

Other impediments on aviation funding include the new trend of global regulations, which are limiting bank lending and increasing the capital requirements of banks around the world.

Export finance will not wilt away though, comments Meakin: “ECA Finance is still likely to be there for those who want or need it. Don’t forget that ECA-supported finance is just one of the sources of finance available. The percentage of aircraft financed with ECA support will rise and fall in line with underlying market conditions.”