Boeing, Airbus Export Financing to Be Costlier Under Governments' Proposal
Airbus SAS and Boeing Co. planes will become more expensive to buy using state-guaranteed export financing under a draft agreement struck today by the U.S., France and five other countries.
The proposal, which still needs final approval from the governments by Jan. 20, would raise the premiums charged for export guarantees to reduce distortions to competition between airlines, said Steven Tvardek, a negotiator with the Paris-based Organization for Economic Cooperation and Development.
“It’s a robust agreement,” Tvardek said in a telephone interview. “It will mean that government-backed financing can complement the market, without crowding the market out.”
The rule change is designed to answer concerns among airlines in the U.S., France, Germany, Spain and the U.K. that are excluded from receiving guarantees because Boeing and Airbus build planes there. Carriers such as British Airways Plc and Delta Air Lines Inc. said the cheaper funding terms favored rivals such as Ryanair Holdings Plc and Dubai-based Emirates.
Minimum premiums charged by the export-guarantee agencies will be raised effective Feb. 1, and set annually with reference to market conditions, Tvardek said, declining to give details. For an investment-grade airline, the one-time premium for a large-aircraft financing guarantee would almost double to about 8 percent, people familiar with the draft text said on Dec. 17.
Backlogs Exempt
Aircraft purchasers will also pay a “market surcharge” to be revised every quarter, with increments limited to 10 percent to reduce volatility, Tvardek said.
The draft, completed after four days of talks at OECD headquarters, grants exemptions for the planemakers’ order backlogs, the official added.
Airbus and Boeing can deliver planes through 2012 with the current state-backed financing terms, Tvardek said. The waiver also applies to 138 planes ordered from the world’s two largest airliner manufacturers before May 2007 with even cheaper credit guarantees, he said, adding that regional jets built by Canada’s Bombardier Inc. and Embraer SA of Brazil get a year longer.
“This destroys all the efforts to have a consistent approach,” said Marc Verspyck, senior vice president for finance at Air France, the Paris-based unit of Air France-KLM Group, Europe’s biggest carrier.
Still Cheaper
Commercial plane financing costs are still about 150 basis points, or 1.5 percentage points, higher than the rates on government-backed loans, Verspyck said in a telephone interview. “The abnormally long transition will lead to savings for the airlines that get these planes.”
Government guarantees typically account for 20 percent of Airbus and Boeing deliveries, and a higher proportion during financial reversals, according to data from both companies. With about 1,000 combined annual deliveries, combined with the exemption for pre-2007 orders, about 540 Boeing and Airbus planes would escape the increased premiums in coming years.
Boeing spokesman John Kvasnosky and Jacques Rocca at Airbus declined to comment on the accord until its final approval. The companies had pressed government negotiators to waive the premium increases for hundreds of planes already ordered, according to two people with knowledge of the matter.
‘Right Direction’
“Export aid has proved effective in supporting activity in periods of crisis,” Airbus’s Rocca said. “It has also helped airlines to renew their fleets and reduce fuel consumption.”
The OECD-brokered agreement is “a step in the right direction,” British Airways spokeswoman Laura Goodes said in an e-mail. “The new financing levels only become effective in two years, however, and are still cheaper than the market rate.”
Deutsche Lufthansa AG didn’t immediately respond to calls.
Carriers based in the U.S. and the European signatory countries also want their governments to withdraw from an informal agreement to withhold export credit from each other’s airlines. By bringing the cost of guarantees closer to market rates, today’s deal may prepare for the abolition of the so- called “home-country” rule, Tvardek said.
Air France may test the governments’ willingness to end the restrictions by applying for export financing on its own future orders, Verspyck said today.
To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net.
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
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