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Fitch: Aircraft Lessors May Miss Ex-Im When Funding is Strained

July 07, 2015, 06:41 AM
Filed Under: Aircraft

The cessation of new lending activities by the Export-Import Bank of the US (Ex-Im) does not have an immediate impact on aircraft leasing companies, given the broad market access they currently enjoy. However, a permanent loss of Ex-Im would eliminate a source of contingent funding for these lessors, particularly during periods of market disruption, says Fitch Ratings. Ex-Im has historically been viewed by Fitch as an important back-up funding option for aircraft lessors, particularly those with material long-term contractual order books with Boeing.

Ex-Im Bank's charter failed to renew on June 30, which prevents the bank from seeking or executing new business. We expect all of Ex-Im's in-force loan guarantees to be uninterrupted and for the bank to continue to monitor its existing portfolio of export credit. Although Ex-Im's ultimate fate remains uncertain, there is a movement afoot in the US Senate to attach reinstatement of the bank to the upcoming highway bill before July 31. Provided Ex-Im's mandate isn't materially altered as part of this process, reinstatement would be beneficial for aircraft lessors' funding profiles.

Aircraft lessors have not utilized Ex-Im Bank to any material degree since the financial crisis, opting instead to finance aircraft purchases through the capital markets given favorable market access and increased export pricing under the new Aircraft Sector Understanding issued in 2011. During the financial crisis, however, several lessors obtained direct loans from the Ex-Im Bank to finance airplane purchases when other financing alternatives were not economically feasible.

Boeing projects that export credit will represent 13% of funding for its 2015 deliveries, compared with capital markets at 33%, bank debt at 29% and cash at 25%. Lessors with material order books with Boeing include Air Lease Corp. (206 Boeing planes on order as of March 2015), GE Capital Aviation Services (149 Boeing planes on order as of May 2015), BOC Aviation (Issuer Default Rating A-, 92 Boeing planes on order as of December 2014), AerCap Holdings N.V. (IDR BB+, 84 Boeing planes on order as of March 2015), Aviation Capital Group (IDR BBB-, 75 Boeing planes on order as of May 2015) and CIT Group (IDR BB+, 62 Boeing planes on order as of December 2014). Boeing Capital Corp. (IDR A) does not have an order book, but serves as a contingent financing source for Boeing customers, suggesting they too could have an increased funding burden under the scenario whereby airlines do not have access to capital markets or Ex-Im funding to finance aircraft purchases.

Historically, Ex-Im's primary role in supporting aircraft financings has been through airlines directly acquiring aircraft from airplane manufacturers. For example, of the $20.5 billion in export credit that Ex-Im provided 2014, about 41% ($8.4 billion) was for aircraft and avionics, including for the export of 61 new US manufactured aircraft. Most of Ex-Im's export credit is in the form of guarantees on loans taken out by equipment buyers.

Barring a market disruption, Fitch expects banks and the capital markets (including lessor funding) to continue to play a dominant role in the airline sector, with or without Ex-Im Bank. Commercial banks have demonstrated willingness to lend without Ex-Im guarantees, particularly as the airlines have been exhibiting improving credit profiles of late.

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