Washington SENSE by yourDragonXi Δ 3rd of January 2014 Ω 12:01 AM

ga; 3:06PM

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«U.S. BIZ Sensing	Θ	Θ
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~ Washington State China Relations Council

»Washington State China Relations Council

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~ Boeing

Boeing

»Boeing Capital

Aircraft Finance Market Outlook 2013-2017

2013 is seen as a year best summarized by sentiments of resilience and gradual realignment

ξ despite a continuous stream of economic and political challenges,
ξ global air travel demand is expected to demonstrate remarkable resilience in 2013
ξ stable demand growth, along with aircraft replacement requirements accelerated by higher fuel prices,
ξ should drive a rising appetite for new fuel-efficient airplanes
ξ Boeing expects that the underlying demand and a scarcity of new airplane delivery positions
ξ will ensure an adequate availability of capital at reasonable prices to fund new airplane deliveries for the industry in 2013
ξ
ξ Aircraft financing sources should benefit from continued strength of seasoned industry participants in Europe,
ξ the increased participation of new and returning entrants, such as banks in Japan, the United States, Australia and Middle East,
ξ along with a steady growth in capital markets financing for airlines and lessors
ξ
ξ This liquidity is necessary to gradually reduce reliance on export credit as higher fees and
ξ equity requirements mandated by the new Aircraft Sector Understanding take effect

ξ Aircraft financing markets should see reasonable liquidity and pricing in 2013, despite a sentiment of uncertainty
ξ Concern will be focused on the impact of higher fees and equity requirements for export credit transactions,
ξ along with more expensive and restrictive commercial bank debt
ξ In response to the challenges, the reliance on lessors and capital markets should increase

2013

ξ The industry should see delivery of roughly $104 billion worth of passenger jets,
ξ with about 95% of the total divided between Boeing and Airbus
ξ there will be important changes in how lessors leverage deliveries,
ξ rapidly increasing participation of new and returning commercial banks,
ξ declining export credit support, and
ξ a significant expansion of capital markets funding
ξ
ξ The scope of changes, along with a sentiment of uncertainty,
ξ will pressure manufacturers to provide backstop financing for future deliveries.
ξ
ξ However, developing market fundamentals and manufacturer pricing discipline for backstop support
ξ are expected to keep actual funding levels in line with recent history.
ξ
ξ Sources of financing for Boeing deliveries in 2013 reflect industry trends of declining reliance on export credit,
ξ rapid expansion of the capital markets, and balanced sources of lessor leverage.
ξ
ξ Global airline deleveraging continues and is represented in the relatively high levels of cash equity contributed.
ξ The majority of lessors' leverage should come from banks and capital markets,
ξ with only 5% of deliveries to be self-funded using parent companies' balance sheets

ξ In addition to new aircraft delivery financing,
ξ the industry can expect to have approximately $11 billion of refinancing requirements
ξ Financial crises and higher oil prices have limited this market's liquidity and
ξ the resulting price disruption between new and used aircraft is attracting additional liquidity from capital markets,
ξ asset-focused commercial banks, and private equity investment firms

Export Credit

ξ Beginning January 2013, higher fees and equity requirements mandated by Organisation for Economic Co-operation
ξ and Development's 2011 Aircraft Sector Understanding go into force.
ξ Barring any severe shock, export credit support for new aircraft deliveries is expected to decline.
ξ Boeing deliveries supported by the Export-Import Bank of the U.S. will be funded in the bank and capital markets.
ξ Ex-Im's guaranteed aircraft bond structure is expected to evolve, expanding the market breadth and improving its efficiency.

Commercial Bank Debt

ξ There were meaningful concerns about the future of commercial bank debt in aircraft finance at the beginning of 2012.
ξ A sovereign debt crisis was impacting European banks and China was tightening its monetary policy.
ξ For 2013, the bank debt market appears stronger and more globally diversified.
ξ European banks continue to be important market participants.
ξ In response to recent loosening of monetary policy, Chinese banks are more active as the primary financiers of deliveries to domestic airlines.
ξ Japanese banks, which have been financing most of the deliveries at home, are now returning to the global markets.
ξ Australian and Middle East banks are growing their share of regional aircraft financing.
ξ A number of North American banks are also starting to finance lessors using their balance sheets.
ξ Despite concern over long-term implications of the new regulations, 2013 is expected to bring an improved commercial bank market.

Lessors

ξ With export credit and commercial bank debt available to fewer customers and at higher prices,
ξ more airlines are likely to lease airplanes
ξ More than half of the world airline fleet is expected to be leased before the end of the decade, up from the current 40% share
ξ Increasing leasing demand and historically strong performance of commercial aircraft investments
ξ should continue to attract sufficient equity and leverage
ξ Lessors are expected to continue to source most financing in the bank and capital markets

Capital Markets

ξ The capital markets' contribution to aircraft finance should increase significantly in 2013.
ξ Boeing expects continued growth in Enhanced Equipment Trust Certificates (EETC) issuances to expand the market's liquidity and improve pricing
ξ Lessors should continue to evolve their use of the capital markets
ξ The expansion will need to coincide with an evolution of the credit rating agencies'
ξ understanding of the aircraft leasing business and the development of rational and consistent rating criteria for aircraft lessors
ξ Rating agencies also have a role in introducing non-U.S. airlines to the efficiencies of capital markets financing
ξ and shaping the market for international EETCs relying on the Cape Town Convention
ξ In 2013, the U.S. capital markets are expected to continue to be the primary market for the origination and
ξ syndication of aircraft public debt, though regional capital markets should continue to play a growing role

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Small & Smart Inc reserves rights to change this document without any notice
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