Feature: Boeing, and the US export credit agency are ready to increase assistance to Middle East airlines.
US moves to help airlines in financing fleet purchases
Boeing and the US government's export credit agency are ready to increase assistance to airlines in the Middle East and worldwide that require aircraft financing, an executive at the US aircraft manufacturer says. However, regional carriers would have easier access to capital from financial institutions than many airlines in the US and Europe, said John Matthews, the managing director for the Middle East and Africa at Boeing Capital, a financing unit of the Chicago-based aircraft builder.
"Financing has got somewhat more expensive, but [Middle Eastern airlines] are able to find the financing they need for the aircraft they have coming," he said. "We don't see a shortage of financing that some people like to talk about." Mr Matthews said airlines such as Emirates and Etihad were well managed and recognised by financial institutions as having the expertise needed to execute their strategies for reshaping the Gulf as a global hub for air travel.
Middle Eastern carriers now represent nearly a third of the annual orders of Boeing and Airbus after making several high-profile orders between 2006 and last year. This year, Boeing expects to deliver 30 aircraft, worth billions of dollars, to Emirates, Etihad, Qatar Airways, FlyDubai and other customers in the region. Boeing Capital views itself as a "lender of last resort", and primarily helps arrange loans between banks and airlines on sales of Boeing commercial aircraft. In times of tight credit, however, Boeing Capital will provide direct financing that is otherwise unavailable.
"We are counter cyclical. In good times, we don't need to do any financing and in challenging times it's more likely we will be asked to do something," Mr Matthews said. This year, Boeing Capital expects to finance $1bn (Dh3.67bn) in aircraft deliveries. By contrast, it provided no capital in the previous three years, when credit was widely available. While private institutions will provide most of the capital needed to finance big-ticket purchases by the region's airlines, a critical role will be provided by the Export-Import Bank of the US, the government's official export credit agency. The Ex-Im Bank insures foreign purchases on behalf of financial institutions, helping to eliminate credit risks associated with loans.
Apart from making loan guarantees, Ex-Im Bank planned to nearly double its direct lending for aviation from $4.5bn last year to $8bn this year, Mr Matthews said. "It's a reflection of the challenging market conditions." Gulf airlines were expected to be recipients of the export credit agency's assistance, he said. "Emirates has an existing relationship with Ex-Im Bank and Etihad is in the process of going into Ex-Im Bank for their deliveries, starting later this year."
Meanwhile, Boeing Capital expects its lending this year to be directed at US airlines, which do not qualify for export credit assistance. Middle Eastern airlines do qualify and as a result Mr Matthews said Boeing Capital did not expect to make any loans in the region. While widespread fear may have aptly described the financial community's sentiment at the close of last year, institutions were now cautiously considering making financing deals, he said. "There are still lenders in Europe and Asia that are able to lend because they didn't invest in subprime mortgages and other things.
"Because of difficulties in the marketplace, from a financier's perspective, if you have capital there are very good opportunities. Our view is that aircraft are attractive investments. They are long-lived, with a 25 to 30-year economic useful life." Another reason aircraft were attractive financing candidates was their mobility, Mr Matthews said. "You can readily move it from one jurisdiction to another and from one customer to another. You have more flexibility than other asset classes."