Jetrader - March/April 2010 - 14

The Funding Myth or Reality? By Bertrand Grabowski, Member of the Board of Managing Directors, DVB Bank Information current as of January 2010. GAP rom as early as the end of 2008—and ever since transport-ﬁnance specialist DVB Bank, among others, brought the subject of a funding gap to the public’s attention—there has been a healthy ﬂurry of statements on what has become a hot topic in the industry. This is good. Borrowers, be they airline, lessor or investor, were unfortunately due to get the unavoidable wake-up call, “the morning after.” For years, they had been spoiled by the availability of underpriced money offered by over-agressive, volume-driven banks with very relaxed covenants for almost any type of aircraft operated by any kind of airline. But, the world has changed. Yes, aircraft ﬁnancing is going to be more expensive; yes, you will need to put more equity in your deal; no, you cannot assume an automatic exit to the generous capital markets; yes, there will be situations where, especially on the second-hand market, there will be no debt available; and ﬁnally, with respect to PDP ﬁnancing, yes, very little leverage will be available. At the end of 2008, stemming from the obvious reality that a lot of banks were retreating from airﬁnance and the void was not being ﬁlled by newcomers, and while capital markets seemed absent and the industry assumed its normal performance status—implying massive losses—the perspective was gloomy. From their side, understandably, the airframe manufacturers were playing down the funding gap. Looking back over the past year, one must confess that the industry did not witness too many distressed situations. In fact, one could say that, for new deliveries—barring a few exceptions—all went well. What Happened In 2009 That Wasn’t Anticipated? Firstly, and by far most signiﬁcantly, the export credit agencies massively increased their commitment to the transportation sector and in particular to the commercial-jet-aircraft industry. Despite the European ECAs not publishing consolidated ﬁgures and the U.S. Ex-Im ﬁscal year not coinciding with the calendar year, we can more or less estimate that based on a normal year like 2008 where ECAs funded approximately $12 billion USD of new deliveries, by the end of 2009, ECAs had contributed a monstrous $21 billion USD, representing an unprecedented 33 percent of the total value of new deliveries compared to usual level of 20 percent. Our excellent friends at Boeing acknowledged that by saying, “the U.S. Ex-Im doubled [in 2009] its volume relative to past years.” Similar statements have been made by our equally good friends from Airbus about the European ECA contribution. While some analysts attempt to explain the much-heralded death of the 2009 funding gap by the extraordinary activity of the capital markets, we at DVB disagree with this explanation. Our internal research shows that there has been approximately $14 billion USD of issuance in the capital markets throughout 2009, of which only $650 million USD were related to U.S. Ex-Im (mainly Emirates, ACG, GOL and LAN Chile). On the European ECA side, to the best of our knowledge, no capital markets deal was completed. Looking deeper into the proposed structured ECA deals offered to investors, we view them as no more than a smartpricing arbitrage, and this cannot and should not be accounted for as a new source of ﬁnancing for the industry. Judging by the freefall on bank pricing in ECA deals—the absolute record so far set by Cathay at an outstanding 14 The ofﬁcial publication of the International Society of Transport Aircraft Trading
Jetrader - March/April 2010

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