x Abu Dhabi, UAEMonday 22 January 2018

Deadline looms for agreement on credits for aircraft purchases

OECD has still not agreed to extend financing credit to all airlines, which could finally allow airlines in home countries of Airbus and Boeing aircraft to receive government-backed credit guarantees.

GENEVA // Boeing, the world's largest aircraft manufacturer, says the nations of the Organisation for Economic Co-operation and Development (OECD) have still not agreed on new rules to extend aircraft financing credit to all airlines, despite a looming deadline.

The proposed changes could finally allow airlines in the countries that produce Airbus and Boeing aircraft to receive government-backed credit guarantees, which lowers the cost of financing on aircraft purchases.

As the global airline industry has become more competitive in the battle for long-haul travellers, airlines in Europe and the US launched a campaign in October alleging the so-called home market rule has subjected them to an uneven playing field.

Etihad Airways and Emirates Airline, which have taken advantage of export credit agency assistance in their aircraft purchases, support the proposed reforms and the concerns of the US and European airlines.

Kostya Zolotusky, the managing director for financial services at Boeing, which is involved in the talks, said: "This is still being negotiated and is still a contentious issue."

The cost of state-guaranteed loans is likely to increase as a consequence of a new agreement, he said. Boeing is managing its business on the assumption that a decision of some kind will be in place by January 1.

Delta Air Lines and British Airways are among 24 US and European carriers lobbying for a change to an export-credit regime they say has given an edge to rival airlines in Asia and the Middle East.

The companies said in October the loans should not be cheaper than bank financing and should be limited to 20 per cent of deliveries.

Emirates, Etihad, Ryanair, Oman Air and six other airlines have created a group to support these concerns. They have also added some stipulations of their own, including that there must be no increase in fees, no limit on the amount of credit extended and no reduction in the proportion of the cost of an aircraft that can be financed.

Mr Zolotusky said: "More expensive credit if you're a buyer is not good, but home-market buyers like it." Airlines that rely on the loans to fund purchases "need to look at some aeroplanes being done commercially, some by lessors and some on export credit."

The OECD's rule revision, which could be signed in the new year but backdated to January 1, would have the greatest cost impact on jets made by Canada's Bombardier and Embraer of Brazil, which will be included for the first time, he said.

"It's a major change," Mr Zolotusky said. "It means regional jet finance will be more expensive."

Mr Zolotusky said the revised agreement is unlikely to curb jetliner sales, which depend more on the economy. "My view is that export credit does not drive demand of aircraft," he said. "The tail does not wag the dog."

Airlines that have used export credit agency loan guarantees to help finance some of their planes will encounter higher upfront fees, the Financial Times reported this week. The newspaper said that if the proposed rules were in place today, airlines with strong credit profiles, such as Emirates or Ryanair, could face an 8 per cent rise of the value of the debt raised to buy a plane, or about twice the current charge. Such export credit financing has become more important during the global downturn, a time when private financing slowed. This made the contribution of export credit financing as high as one third of the value of aircraft sales, Airbus has said.

* with agencies