With aircraft orders at a record high,European banks pulling out of the market, Asian investors aggressively looking to expand, and younger aircraft being parted out for better returns, the report, Aviation Financing – Fasten your seatbelts, says the market could be facing one of the most radical transformations in recent history.
As backlogs of aircraft orders reach unprecedented levels, the survey shows lessors and airlines will be battling for the most competitive finance rates in one of the most turbulent economic climates in recent times. As of July 2012 the aircraft order books of Airbus and Boeing had risen to 8,500, and while financing costs on jets are likely to rise, the jury’s out on how this will impact the different parts of the value chain, which includes aircraft manufacturers, airlines and lessors.
One key trend in the report is the shift in financial powerhouses from West to East. European banks are retreating but Chinese, Japanese and US financial institutions are jumping in.
PwC financial services partner, Shamshad Ali, said: “There are a number of headwinds in the aircraft finance market which may make these orders more difficult to finance – and more expensive. With the cloud of economic uncertainty still hovering around Europe, we are seeing banks there retreating from the market and interest from Asian investors is increasing. We are already seeing banks from China and Japan snapping up aviation assets and we think this trend will only accelerate."
PwC interviewed a mix of the world’s leading banks, lessors, airlines, export credit agencies for the report. It also found that airlines in developing countries are buying more brand new aircraft where historically older aircraft would have gone, which could see more of them ultimately retiring in ‘jet cemeteries’.
Neil Hampson, PwC’s global head of aerospace & defence, added: “The industry is still experiencing unprecedented levels of orders for new aircraft that are more fuel efficient, technologically superior and that can replace ageing fleets. Our research highlights that whilst financing will be available, it will be at a higher price. As competition to secure financing intensifies, the question remains as to who will be picking up the cost.
“As part of our research we discovered more aircraft are being parted out after only 7/8 years service instead of the traditional 25 years, as investors are gaining greater value and returns than if the aircraft remained operational. The flipside of this, however, could be more aircraft retiring to so called 'jet cemeteries'.”
Although the report does not state anything new that this service and Airline Economics has not covered already, it does agree with our view that the next few years will be crucial for aviation financing and that the need to attract new investors into the space is even more essential for the industry. Last year we initiated a series of investor forums in London, Miami and Hong Kong, with this aim in mind and succeeded in opening up new investor contacts for the industry. The need is even greater this year and we aim to continue these meetings into 2013. To kick off the year, many of our investor contacts will be attending Airline Economics Growth Frontiers Dublin conference on 20-23 January – we hope to see you all there.