The leading players in the world of aviation financing said Tuesday there is a multibillion dollar "funding gap" between all the Boeing and Airbus jets due for delivery this year and the money to pay for them.
PHOENIX — The leading players in the world of aviation financing said Tuesday there is a multibillion-dollar “funding gap” between all the Boeing and Airbus jets due for delivery this year and the money to pay for them.
Bob Genise, the chief executive of Dubai-based airplane lessor DAE, provided a stark image of what that means to Boeing.
Genise, who maintains a home in Seattle, said he’ll be surprised if he doesn’t see “white tails” parked alongside Boeing Field when he’s driving on Interstate 5 toward the end of the year.
That’s aviation slang for completed jets whose buyers don’t have the money to take possession. There haven’t been any white tails at Boeing for years.
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Walt Skowronski, president of Boeing Capital, the company’s jet-financing unit, conceded that a gap exists, pegging it at somewhere between zero and $5 billion. Yet he offered assurances that Boeing can manage its scheduled deliveries through the problem.
Stephen Udvar-Hazy, chief executive of International Lease Finance Corp. (ILFC), the world’s largest aircraft lessor and the biggest customer of both Boeing and Airbus, wasn’t reassured. His company is owned by AIG, the giant insurer that’s still struggling despite billions of dollars in federal bailout money.
“When a bomb explodes, the light flash travels a lot faster than the sound,” said Udvar-Hazy. “The flash occurred in September. But the sound hasn’t reached Seattle and (Airbus headquarters in) Toulouse yet.”
He and other leading airplane-financing experts spoke at the annual conference of the International Society of Transport Aircraft Traders (ISTAT).
They suggested the funding gap caused by the virtual freezing of bank lending is much bigger than Skowronski’s estimate, anywhere from $10 to $20 billion, and that Boeing would face severe consequences, such as:
• Cutting production rates as early as the fourth quarter, eventually reducing output by as much as a third — which inevitably would mean slashing jobs.
• Having to finance airplanes itself, putting in up to three times the $1 billion it anticipates, yet still not closing the funding gap.
Robert Morin, vice president of the federal Export-Import Bank, said the government is ready to offer as much as $10 billion in guarantees to help finance U.S. airplane sales going overseas, mostly for Boeing jets.
But that likely won’t be enough to close the gap, said the experts at ISTAT.
Boeing executives offered repeated assurances that all deliveries for this year are financed.
But Bertrand Grabowski, managing director of Germany’s DVB Bank, called that an “act of faith.” In an interview, he said troubled banks have made soft commitments to both Boeing and Airbus customers that they may not be able to keep.
“Some of the Boeing deliveries are not secure … for the last quarter of this year,” Grabowski said.
Some recently European nationalized banks “have absolutely no clue if they can deliver what they signed term sheets for,” he said.
European banks have dominated aviation financing in the last decade. Udvar-Hazy said at least half of those that used to be in aviation are now “totally shut out” of the market.
Grabowski forecast that $5 to $7 billion of deliveries scheduled for 2009 — mostly for Boeing and Airbus and with a few for Brazilian jet maker Embraer — will “evaporate” by year-end.
Boeing and Airbus would then have two choices, said Robert Martin, chief executive of BOC Aviation, a Singapore-based leasing company owned by Bank of China: “They either fund those deliveries themselves or cut back production.”
Boeing Capital’s Skowronski said the company expects to have to provide about $1 billion in financing to its customers this year, but is ready to give more.
“If it were to go to $2 billion or $3 billion, that’s generally not going to be a problem,” he said.
The U.S. government, represented by the Export-Import bank, will close part of the gap by increasing its loan guarantees from a typical $4 billion to $5 billion a year, to $9 billion or $10 billion.
Ex-Im’s Morin said 2009 could be the toughest year of the down cycle. He expects to finance 150 to 170 airplane deliveries in 2009, mostly Boeing wide-bodies.
The European Export Credit Agencies will offer a similar dollar amount in loan guarantees to support between 200 and 300 Airbus deliveries, mostly less expensive narrow-bodies.
“This is making 9/11 look like a speed bump,” said DAE’s Genise.
“The liquidity crisis is not turning around in three months,” he said. “It’s not turning around in six months. It’s a major disaster for the global economy and it will be a major disaster for the airline industry and the manufacturers.”
Dominic Gates: 206-464-2963 or email@example.com