At the Paris air show the MoUs and LoIs have been coming in fast with older ones firming up. All manufacturers have seen good action this week. ATR has had a real result and most will say after the event that this was the 787-10 show but in reality it is GE that has had all the running. Yesterday’s $8.6 billion deal with AirAsia was a showstopper without doubt. The carrier ordered additional LEAP 1-A engines, CFM56-5B engines and spares to power 100 Airbus A320 planes already on order. The deal also includes a 20-year service agreement for GE Aviation and its joint venture CFM International. So that puts GE on $11bn for the week thus far.
Nordic Aviation Capital fund raising on Monday followed by the ATR order on Tuesday was of interest. We know that more than one lessor was trying to do a deal for a large order of ATR aircraft to corner the delivery slots and it is a shrewd move indeed from Nordic to close the funding so they could firm-up the deal with ATR, since it is arguably the more secure credit and lower risk option. The 90 ATR-600 order is a truly massive deal for ATR.
But as is always the case the world does not stop turning outside of the air show fences and this week we have had a few spanners flying into the works on some big deals. ILFC and its SEC filing of Monday proved that Chinese political will might not be behind the purchase of the lessor in this transitional period, and in China political will is the beginning and end of big business. Now we have a US government review finding that even though US Airways and American Airlines overlap on just 12 routes, the merger of the two carriers would affect connecting routes with at least one stop. GAO analyst Gerald Dillingham told a Senate aviation subcommittee that if the merger is approved, competition would decline because there would be one less airline flying those connecting routes. He told how competition would be reduced on more than 1,600 routes traveled by more than 53 million passengers. A more significant loss of competition than occurred with the 2010 merger of United Airlines and Continental Airlines. Antitrust regulators at the US Justice Department are reviewing the proposed AA-US deal, which still needs approval by the federal judge overseeing AA’s bankruptcy case.
Now here is a thought for the day: There is at the show a growing undercurrent of feeling from many order signatories that finance covenants need to be updated soon to reflect the increasing possibility that interest rates will rise within the next few years. Many are suggesting that the margin taken by the banks should decrease if interest rates go up and some are willing to test this soon. Now what do you think about that?