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Airlines

Sealing the deal

Although the overall aircraft finance market encompasses a wide variety of financiers, smaller regional carriers often have difficulties accessing aircraft financing but, as Keith Mwanalushi finds, change is in the air
 

Boeing’s 2018 Current Aircraft Finance Market Outlook forecasts a year of stable growth and funding diversification. The report says for the eighth straight year, passenger traffic saw above trend growth with historically high load factors and aircraft utilisation rates.

 

This consistent demand growth, along with the resurgence of air cargo, is attracting new capital and innovative ways to access new financing markets.

However, a growing number of smaller regional carriers that seek to fly modern, more environmentally friendly and fuel-efficient aircraft can sometimes face bottlenecks when it comes to financing.

 

“The financing of more efficient aircraft is not in itself a problem,” argues Anne-Bart Tieleman, CEO at TrueNoord. Indeed, he accepts it is generally easier to raise finance (at a sensible cost) for current in-production types compared to older, perhaps less efficient types. “This is simply because more modern, fuel efficient aircraft are expected by financiers to have more resilient residual values and to be easier to remarket later on.”

 

Juliet Hewitt, Marketing Manager at regional aircraft marketing specialists Skyworld Aviation says financing on new aircraft is inherently riskier in the regional sector particularly where smaller carriers are concerned. “Generally speaking, the traditional finance providers such as banks do not see the used regional aircraft market as a key area for opportunity, however there are certain niche players in this sector looking for the right combination of credit and asset,” says Hewitt.

 

Private equity firms are a possible source of financing, but these arrangements can be costly, Hewitt warns. “Assets in the five to ten-year-old age bracket which have significant years of depreciation out of the way are of more interest to providers. Financing of new aircraft to larger carriers with solid credentials are more appealing to traditional lenders.”

 

Where smaller regional carriers seek to raise finance to purchase aircraft (whether for older or younger aircraft) Tieleman observes that they face the same situation as they always have – to offer attractive financials and stability to reassure a lender they can make the payments for the term of the loan. “In this respect, leasing companies like TrueNoord always have an advantage over smaller carriers in the eyes of debt providers, as they offer greater diversification from a fleet of aircraft spread across multiple carriers and geographies.” >>

 


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