Investors to lose money in aircraft finance "bubble" - DVB Bank

Mon Mar 31, 2014 9:30am EDT
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* Hunt for yield is creating bubbles everywhere - DVB

* Credit margins will continue to decrease - DVB

* Asian plane order book could drop 20-25 pct - DVB

By Arno Schuetze and Andreas Kröner

FRANKFURT, March 31 (Reuters) - Some of the yield-hungry investors pouring money into the financing of aeroplanes are likely to make losses, as they have pushed interest rates down to levels that sometimes do not reflect the risks, a leading lender to the sector forecast.

Able to borrow money themselves at rock bottom rates, banks and investors are hunting for asset classes where they can make a higher return. With record numbers of aircraft on order from planemakers Airbus and Boeing, many have been drawn into meeting the surge in demand from airlines for loans.

"There will be money lost in this sector", said Bertrand Grabowski, board member responsible for aviation finance at Germany's DVB Bank, the largest bank lending to the industry excluding groups whose loans are backed by government guarantees.

"Markets are desperately looking for opportunities to deploy liquidity, causing bubbles everywhere - that is not specific to the aviation sector", he added.

Just a few years ago, tougher capital regulations triggered fears that airlines wouldn't find the funds for their expansion plans, as European banks scaled back lending.   Continued...