Aircraft financing costs set to rise, PwC says

Mon Jan 7, 2013 11:12am EST
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PARIS (Reuters) - Global airlines face a hike in the cost of financing aircraft deliveries as an international pact on export credits squeezes already-scarce funding, according to consultants PwC.

Tougher policies by leading Export Credit Agencies (ECAs) could result in higher ticket prices and speed up the development of alternative funding channels in the $100 billion jetliner market, it said in a report published on Monday.

Although the industry is expected to cover its needs this year, the higher costs and tightening of funds could also put pressure on manufacturers such as Airbus EAD.PA and Boeing (BA.N: Quote) to fill the gap with more customer finance, it added.

Manufacturers made up 7 percent of global aircraft financing in 2012, up from 3 percent in 2011, according to the report.

For years government export credit agencies in the main aircraft-producing nations -- the United States, Canada, Brazil and EU members such as France, Germany and the UK - have acted as a backstop to promote exports to fragile foreign airlines.

But since the financial crisis, cheaper aircraft loans made available as a result of ECA guarantees have become a routine funding option as airlines expand rapidly in emerging markets.

According to the Organization for Economic Co-operation and Development (OECD), ECA-backed loans have historically funded 20 percent of aircraft deliveries but this rose to 30 percent after the 2008 crisis as purely commercial credit became scarcer.

ECA guarantees allow banks to base their loans on sovereign risks rather than the shakier credit risks of the airlines.

Under an OECD-brokered accord which comes fully into force this year, the cost of ECA funding will increase towards market rates and their conditions will be unified for the first time.   Continued...

An air traffic controller monitors aircraft movement from the control tower at Manchester Airport, northern England, February 3, 2011. REUTERS/Phil Noble