Non-Subscriber Extract
Aircraft finance outlook
By Anthony O'Connor
10 January 2008
Just how much aircraft finance will be affected during 2008 by the fallout of losses resulting from the US sub-prime lending crisis is probably too early a call for most bankers and financiers.
However, the aircraft finance market is generally optimistic that a degree of normality will return to lending patterns, albeit with some overdue corrections to deal margins and pricing levels and a departure from the loose financing structures that have infuriated the purists.
At the start of 2008 airlines will be faced with cautious financing criteria being adopted by bank credit committees. Aircraft values are at peak and more conservative lending is likely to remain the underlying trend for at least the first few quarters of 2008.
"The caution of the banking market at year-end to underwrite big tickets was obvious. Consequences for the aviation sector are far-ranging and should not be underestimated in the wake of this crisis," says Harald Brauns, head of aircraft finance at NordLB in Hanover.
"It is the risk management departments that are clearly gaining ground in the everlasting battle of market people versus risk managers. The shift in the balance of power may be followed by a chain of cruelties such as restriction to further grow the portfolio, steeper loan-to-value (LTV) curves, lower residual value risk, higher syndication requirements, higher all-in pricing as well as support of core customers only," says Brauns.
"My gut feeling is that we are not out of it yet - it could go either way," says Christian McCormick, head of aircraft finance at Natixis Transport Finance in Paris. "I continue to believe that aircraft finance is a flight to quality - if you finance the right aircraft."
"I don't think 2008 will be as difficult as the post-9/11/SARS environment but I expect lenders and financiers to be more cautious this year compared with last year," says Richard Moody, director of asset finance and leasing at Deutsche Bank in London.
"During 2008 there will still generally be competitive pricing for tier-one carriers, but where the squeeze will be more visible will be for second- and third-tier carriers in more challenging jurisdictions," he says.