Nov. 6 (Bloomberg) — Airbus SAS and Boeing Co. may end up with as many as 200 new planes without buyers next year because airlines are unable to obtain funds to pay for them amid a global credit squeeze, a consultant said.
“There’s a funding gap and we don’t really know where the money is coming from,” Eddy Pieniazek, a director of aviation adviser Ascend, said at a conference in Hong Kong yesterday. “If the money doesn’t arrive, you can quite easily see 200 new aircraft, or whitetails, parked in a desert.”
Airbus and Boeing, the world’s two-biggest airplane makers, will probably deliver about $65 billion of large commercial aircraft next year, according to a report by JPMorgan Securities Inc. Leasing companies and banks, which will account for about 60 percent of the aircraft financing market in 2008, are likely to “pull back substantially,” creating a funding gap as wide as $20 billion, the report said.
“Nobody is getting out of this alive,” said Bill Cumberlidge, director of aviation asset finance at Allco Finance Group, which on Nov. 4 handed over operations to outside managers after warning it may default on its debt. “The debt market is dead.”
Damage from the credit crunch has accelerated after Lehman Brothers Holdings Inc. and Washington Mutual Inc. collapsed, the U.S. government took control of Fannie Mae, Freddie Mac and American International Group Inc., and Merrill Lynch & Co. and Wachovia Corp. were purchased by rivals.
“There’s almost zero liquidity at the moment,” said Vicente Alava-Pons, regional head of aviation at DVB Group Merchant Bank (Asia) Ltd. “It will take longer for the banks to come back because there will be more writedowns.”
Borrowing costs have tripled compared with six months ago, according to Alava-Pons, declining to be more specific. DVB may extend $1 billion in loans to finance aircraft in 2009, less than half of the more than $2 billion it provided this year, he said.
“The market has dried up,” Eddy Porwanto, executive vice president for finance at PT Garuda Indonesia, said on Oct. 31. “Some of the potential lessors that we were talking to have pulled out.”
Garuda, the Indonesia’s biggest airline, is seeking financing for the remaining 14 of 25 Boeing 737 planes it has on order, said Porwanto. The carrier already secured funding for the 11 aircraft through so-called sale and leaseback agreements.
Difficulties in obtaining financing is adding to the problems at airlines worldwide, which are already struggling to cope with higher fuel costs and slowing demand for air travel.
Cathay Pacific Airways Ltd., Hong Kong’s largest carrier, yesterday said that financial results this year will be “disappointing.” Air France-KLM Group, Europe’s biggest airline, said it will be “very difficult” to meet full-year earnings targets as the global credit crisis and slowing economic growth undermine demand for travel.
Even so, none of Boeing’s customers have indicated they need help to pay for aircraft, according to the company’s financing arm. Boeing Capital Corp. said liquidity is starting to return after central banks worldwide cut interest rates. The unit expects funding needs to be lower than in the aftermath of the Sept. 11 terrorist attacks, when it financed as much as $3 billion of aircraft annually for three years.
“People have greatly underestimated what export credit agencies are going to fund,” Boeing Capital’s Managing Director Kostya Zolotusky said yesterday. “No one has accounted for regional banks.”
Airbus Chief Operating Officer John Leahy has said the planemaker would be willing to increase direct financing of purchases.
China’s banks are financing all of the deliveries by its carriers, while the majority of planes for the Japanese market are being funded by the country’s lenders, according to Zolotusky.
Even if manufacturers boost financing and export credit agencies increase their contribution from the $11 billion to $12 billion level in 2008 by 50 percent, “they may not be able to make up the difference, which could result in production cuts or “whitetails,” Joseph Nadol, a New York-based analyst at JPMorgan, wrote in an Oct. 20 report.
Whitetails are brand new planes, straight off the assembly line, but with tails that lack the logos of airlines because carriers aren’t able to accept them.
Some airlines have asked DVB to provide “bridging” solutions, or short-term loans, to make payments for planes, a sign that new aircraft may be put in storage, Alava-Pons said.
The lack of funding is also pushing the value of second- hand aircraft lower, said Mike Skinner, chief executive officer at aviation consultant AMS Aircraft Ltd.
Airlines including Cathay, which on Nov. 1 said it plans to sell five aircraft to slow fleet expansion, may not be able to find a buyer.
“The problem is, people may want the aircraft but can’t finance them,” Skinner said.
Last Updated: November 5, 2008 19:07 EST
By Chan Sue Ling