|
PRAGUE—Airlines that need loans next year to buy planes
will face difficulties amid a deepening credit crisis,
forcing government export agencies and manufacturers to
step in, according to aircraft financiers.
Carriers
generally secure bank financing or other loans two to
six months before planes are handed over, so the global
banking crisis hasn’t affected current deliveries,
several airline specialists said on Tuesday at a
conference in Prague. That will change in early 2009, as
carriers face higher interest rates or the prospect of
being refused loans.
“It’s
going to be difficult for airlines and lessors to get
financing because the usual funding from capital markets
is closed,” said Bertrand Grabowski, a managing director
of Frankfurt-based DBV Bank, which has about $5 billion
in loans to airlines and leasing companies. “The bank
market is shrinking.”
Grabowski spoke in an interview in Prague before he
presented his views on prospects for aircraft finance to
members of the International Society of Transport
Aircraft Trading (ISTAT). The head of aircraft finance
at Calyon, and the top executives at lessors
International Lease Finance Corp. and CIT Group also
said they expect financing to be extremely limited in
2009 except for airlines with the very best credit
standing.
“The
difference I see is, this is the first time in my career
we’re talking about the availability of capital versus
the price of capital,” said Jeff Knittel, chief
executive officer of CIT Group. “Historically it’s been,
‘If we pay more we can get access to capital in some
form.’ The reality is, given the environment of the last
few weeks, the question arises: ‘Will there be capital
to deliver these planes?’”
Financing difficulties could drive airline consolidation
as weaker carriers fail or are bought when they can’t
buy more planes, DBV’S Grabowski said. The largest
airliner manufacturers, Airbus SAS and Boeing Co., may
have to increase lending programs offered when planes
are ordered, he added.
Airbus
has financed about 2 percent of its aircraft sales since
2006. Chief operating officer John Leahy has said the
planemaker would be willing to increase direct financing
of purchases. Boeing, which hasn’t had to provide
financing itself in more than two years, has also said
it’s ready to help out customers if they ask. Chief
executive officer Jim McNerney said on October 3 that
none had requested assistance yet.
“Export
agencies know they’ll have to do something, but in no
circumstances will it be commensurate with what’s needed
in the next few years,” Grabowski said. “There’s clearly
a funding gap.”
For new
deals under way, rates have already shot up, says Ian
Massey, chief financial officer of GMT Global Republic
Aviation, a Dublin-based commercial aviation and
lease-management company. At the last deal GMT closed,
it raised funding blended across the debt range at about
6.25 percent, he said.
“Now
it’s somewhere between eight and nine and it could get
worse,” Massey said. “Or maybe you won’t be able to
raise it at all. That’s the problem: There’s so little
liquidity in the senior debt market, and it affects
anyone buying planes, whether lessors or airlines.”
Banks
are refusing even to lend to another, and that’s
tightening credit for everyone, he said. Another problem
GMT’s facing, he said, is that the lessor is that the
market for swapping from floating rates to fixed rates
is disappearing.
The
aircraft lessor generally borrows money at floating
rates, but then leases out the planes at fixed rates to
airlines using them in fleets. GMT’s approach has always
been to swap the floating rate for fixed so it can match
the revenue stream from the airline to the borrowing
rates it’s paying.
Swaps
are now available only for a limited time frame—about
three months, because that’s the only period for which
banks feel confident projecting Libor rates. “If you
want six months or five years, you just can’t get it.”
Fuel
hedging may also become a problem, said many experts.
For airlines to buy financial instruments locking in an
assured price for buying kerosene, banks are on the
other end of the transaction. Instability in the markets
may keep many banks from even making such commitments,
said Normann Becker, vice president of Bulgarian Air
Charter Ltd.
“Credit
will already be more tight in general, but whenever you
have exposure to a risk, you have to look doubly,” said
Becker. Selling hedges to lock in oil at the equivalent
of $100 a barrel, he said, could prove too risky in a
climate where oil could easily shoot back up to $140 a
barrel or more.
To be
sure, however tight credit becomes, airlines with
stronger balance sheets and business models will manage
to get aircraft, and ultimately come out stronger from
the crisis as it pushes weaker carriers from the market.
Deutsche
Lufthansa AG, for example, with the best gearing in the
European airline business, buys almost all its aircraft
with cash from operations, said Nico Buchholz, fleet
director for the carrier.
“We’re
not unduly concerned because we can finance all of it
through cash,” said Hal Calamvokis, strategic planning
manager at EasyJet. “If financing’s not attractive,
we’ll use cash,” he said in Prague after his own address
to ISTAT. (Bloomberg) |
