As backlogs of aircraft orders reach unprecedented levels, lessors and airlines will be battling for the most competitive finance rates in one of the most turbulent economic climates in recent times, according to a survey by PricewaterhouseCoopers (PwC). The finance market could be facing one of the most radical transformations in recent history, the survey shows.
One key trend in the report is the shift in aviation financing away from Europe. "European banks are retreating but Chinese, Japanese and US financial institutions are jumping in," according to the suvery.
PwC financial services partner, Shamshad Ali, says: "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 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 retiring in "jet cemeteries".
Neil Hampson, PwC's global head of aerospace and defence, adds: "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 the research, the firm discovered more aircraft are being parted out after eight years of 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 jet cemeteries."