Doug Cameron/LONDON
BLEAK WARNINGS from a leading US credit-rating agency that aerospace manufacturers are heading for a funding crisis over mushrooming customer finance obligations have raised anger within the industry.
The report from Moody's Investors Service claims that the exposure of civil manufacturers has risen by more than 50% over the past five years. Tassos Philippakos, who wrote the report, adds that this happened during a time when aircraft deliveries slumped by a similar amount. He warns of a "significant gap" in funding created by poor airline results and banks withdrawing from the market.
The Moody's survey, which covers 20 airframe, engine and component suppliers claims that total exposure rose by another 3.5% in 1995, to nearly $28 billion. That includes a mix of direct loans, operating leases and guarantees.
Philippakos concedes that manufacturers have been successful in parcelling up and selling some of their commitments to capital markets, through schemes such as aircraft securitisations. Such sales raised $4 billion in 1995, cutting the total exposure to $23.7 billion.
Philippakos nevertheless warns that manufacturer credit ratings may come under threat from the "mounting" financing burden. The suggestion has drawn an angry response from the industry.
"The report is factually inaccurate and shows no recognition of our efforts to address the issue," says one senior executive in a leading European aircraft group. "Financing risk is coming down in net terms, and there is scope for securitisation," he adds rejecting the report's, argument that the appetite of the capital markets for manufacturer obligations is limited.
Phillippakos is viewed as one of the most bearish on Wall Street, but his report has been dismissed as "emotional". "There are signs of financial responsibility all over the place, as well as efforts to remove customer financing as a competitive tool," says a senior treasury executive with a major US aerospace group.
Manufacturers concede that they will be under pressure when the US majors make their expected return to the new-aircraft market in 1997. American, Delta and United have traditionally used their purchasing power to extract the largest concessions from the manufacturers. "This will be a test of our resolve," admits one source.
In the Moody's survey, airframe manufacturers account for some $17 million of the net financing burden, but have also been the most active in reducing obligations, notably through the enhanced equipment trust certificate market used by Boeing, and the creation of off-balance sheet leasing vehicles such as Airbus Finance Company.
Airbus, Boeing and McDonnell Douglas accounted for more than $11 billion between them, a total, which is expected to grow to $20 billion by the end of the century. Engine manufacturers, viewed as the most aggressive providers, contributed around $6 billion.
Source: Flight International
