Boeing Financing May Get Government Boost Before Costs Rise

Boeing Co. (BA) commercial aircraft financing may get more government backing in 2012 than last year as airlines rush to take advantage of funding costs that will rise in 2013, a senior executive said.

Kostya Zolotusky, managing director for leasing and capital markets at the Chicago-based company’s Boeing Capital Corp., said revised rules on the cost of getting loans backed by U.S. guarantees will go into effect in 2013, after the 2011 renegotiation of the Organization for Economic Cooperation and Development’s agreement on export credits for civil aircraft.

Boeing’s airliner deliveries should climb to 585 to 600 in 2012 from 477 last year, the company said today as it reported earnings. That should help Boeing in a bid to reclaim the top spot in commercial-jet production lost to Airbus (EAD) SAS in 2003. Airbus has said it will deliver about 570 planes this year.

The role of export financing in aircraft sales has ballooned since late 2008 after the global credit crunch curbed banks’ willingness to lend. Government guarantees backed 34 percent of aircraft purchases in 2009, more than double the percentage in 2008. The Export-Import Bank of the U.S. provided guarantees for about 29 percent of plane purchases last year, Zolotusky said.

Export-Import participation will stay at a high level this year because markets are “undergoing significant realignment, and when this realignment occurs, help is needed,” Zolotusky said in an interview in Dublin today. “The other big driver is that 2012 is the last year that pricing on Ex-Im credit will be attractive.”

New Rules

In 2013, credit for plane purchases shifts to a new “Aircraft Sector Understanding” rule that will make it more expensive and “reduce demand by airlines to use Ex-Im credit,” he said. The executive declined to say whether deliveries might be expected to ease in 2013.

“This year’s deliveries and next year’s deliveries are locked in,” he said. “I think everything is pre-planned, and we’re executing our plan.”

While U.S. carriers have tapped capital markets to borrow money to buy planes in recent years, non-U.S. airlines have done so sparingly, and only when backed by government guarantees. Otherwise, lenders lacked the protection of the U.S. Bankruptcy Code, which allows creditors to take back planes if financing payments aren’t current. A global agreement known as the Cape Town Treaty, which Boeing pushed for, will help protect creditors in the future and may help facilitate capital-market financing outside the U.S., Zolotusky said.

Boeing is boosting output by more than 60 percent in four years through 2014 to meet demand for more fuel-efficient planes. Sales in 2012 may be $78 billion to $80 billion, the manufacturer said today.

To contact the reporter on this story: Andrea Rothman in Paris at aerothman@bloomberg.net

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