Posted July 9, 2009 4:15 PM
By Ascend Worldwide Admin
Air Finance Conference Highlights
Gary was one of the opening presenters at the recent Air Finance conference in Beijing and reports on some of the event’s highlights
The session was opened by Garry Burke, CEO of Pembroke; he noted that the “balance of power is shifting from West to East” when it came to the aircraft finance market. This was a recurring theme throughout the conference, particularly when it comes to the lending activity of Chinese banks to Chinese operators – interest in seeing that activity expand internationally is extremely high, not surprising given the financial squeeze that has characterized the international banking industry in the past year. However, the Chinese market and Chinese tax / regulatory structure are quite different to the West, and so it remains to be seen how quickly Chinese banks will become major international players in the aircraft finance arena. Furthermore, given the collapse of international trade flows, China’s export-oriented economy is giving increasing focus to its huge domestic market – from an air transport perspective, the contrast between domestic and international travel in China is stark, with domestic travel showing recovery while international travel remains weak.
In response to the widely-publicised issue of the “funding gap”, Boeing pointed out that of the $1 billion need for 2009 that it forecast in October 2008, it has so far used $100 million; in contrast, post-9/11 it was provisioning $3 billion annually for three years, and it had no need to provide financing support in the “good years” (2005-2008). Boeing expects signs of recovery by end of 08 or early 09 but there is lots of uncertainty, and will continue to provision as necessary.
For its part, Airbus has a 2009 provision for up to €1 billion, and have used less than half so far. Airbus: has delivered €15.4 billion worth of aircraft so far in 2009 – 64% financed from commercial markets, 35% ECA support, less than 1% used Airbus support. China is Airbus' 2nd largest country by fleet after US.
Manufacturers expect Chinese banks, which have been extremely active in financing Chinese deliveries since 2000, will become increasingly involved globally, following the banks in the US (1960-70s) Japan (80s) and Europe (1990-present). With COMAC developing new aircraft demand for Chinese finance will be huge - but just as US banks finance Airbus and vice versa Chinese banks will continue to finance Airbus and Boeing products based on their demand.
The market appears to have re-adjusted for 2009, with deferrals, so 2010 will be critical. Most deliveries into China have been financed by Chinese banks – China’s ExIm also provides credit for imports from Airbus and Boeing (as well as export support for Chinese aircraft exports, mainly to Africa).
With $35 billion of deliveries due to Chinese carriers in the next few years, international financiers expect that Chinese operators will want to diversify their funding requirements and so the consensus was that, although the bulk of financing for Chinese carriers has been provided by Chinese banks, there are opportunities for international financers.
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