Boeing Co. (BA) said airlines will make more use of capital markets to buy aircraft as demand for financing will exceed $100 billion next year for the first time even as traditional funding sources decline.
Delivery financing will rise to $104 billion in 2013 from $95 billion this year, Kostya Zolotusky, managing director at Boeing Capital Markets, the Chicago-based planemaker’s finance arm, said in an interview. The figure will rise to $132 billion in 2017, he said.
Sources of aircraft financing are changing as Europe’s debt crisis crimps lending and export credit costs will rise under international rules that take effect next year. Capital markets, traditionally used by U.S. airlines, have become more important for leasing companies and foreign carriers this year. A bond deal to finance Airbus SAS A380s used by the Emirates airline has opened the door to more such arrangements, Zolotusky said.
“We will see this growth trend continue,” in part owing to the so-called Cape Town agreement that makes it easier to repossess aircraft across borders if a carrier defaults on payments, he said. “We feel there will be adequate liquidity, so we are focused on ensuring we are able to manage these big shifts of where that liquidity originates without disruption.”
Smaller airlines must learn how to deal with credit agencies and investment banks to access new sources of capital, Zolotusky said. “It is a big organizational and process shift for our customers.”
Boeing expects capital markets to finance 15 percent of aircraft deliveries next year, up from 6 percent in 2012. That will help fill a gap as financing from export credit agencies may fall to 23 percent of deliveries from 30 percent this year, Zolotusky said.
Those government institutions were critical in supporting deliveries in 2008 and 2009 at the height of the global financial crisis.
Airbus-parent European Aeronautic, Defence & Space Co. (EAD) sees a “significant increase” in export credit financing costs, Harald Wilhelm, the company’s chief financial officer, said in a presentation to investors in London yesterday. Nevertheless, “appetite remains” for that source of financing, he said.
Boeing, Airbus and other aircraft makers may also have to step up their own funding for customers.
“The scope of changes, along with a sentiment of uncertainty, will pressure manufacturers to provide backstop financing for future deliveries,” Boeing said in a report looking at the financing market from 2013 to 2017.
Patterns of lending by banks are also changing. Chinese banks are becoming more important, particularly since the country’s government loosened monetary policy, and Japanese institutions are expanding their activity, Zolotusky said.
One issue for banks is that they need access to dollars to help fund aircraft purchases. While dollar liquidity will affect lending costs, it will not become a major obstacle, Zolotusky predicted.
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