Aircraft financing costs seen close to peak

Mon Feb 20, 2012 11:02am EST
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By Arno Schuetze and Alexander Hübner

FRANKFURT (Reuters) - The cost of financing new planes may come off current highs for some carriers as lenders step up competition for creditworthy debtors, a top supplier of aircraft financing told Reuters.

"I think we are reaching a ceiling now (and) may even be seeing prices slip slightly," Bertrand Grabowski, who oversees the aircraft financing business at Germany's DVB Bank (DVBG.F: Quote), said in an interview.

Banks' profit margins had gone up by 50-70 basis points over the last 12 months, he noted, signaling some room for more competitive pricing.

Grabowski said airlines with top-notch credit ratings would be the main beneficiaries. These include firms like Australia's Qantas (QAN.AX: Quote) and U.S.-based Southwest Airlines (LUV.N: Quote).

Spreads for loans to second and third class borrowers, in contrast, were likely to increase, he added.

DVB, owned by Frankfurt-based cooperative DZ Bank DGBGg.F, ranks among the top five aircraft financing banks worldwide. Excluding loans guaranteed by government agencies, DVB says it is "probably the biggest aircraft financing commercial bank."

Airlines and aircraft leasing companies around the world are expected to buy as much as $4 trillion worth of new aircraft over the next 20 years, according to Boeing, and the bulk of that will be funded by banks or leasing companies.

DVB expects a record volume of new aircraft deliveries worth more than $90 billion in 2012 and roughly $110 billion in 2013. Demand will mainly be driven by Asian low-cost carriers, Middle Eastern airlines and the U.S. re-fleeting program.   Continued...