Ian Verchere
In a move certain to raise eyebrows in air finance and global investor circles, Boeing has revealed plans to weld its disparate financial service interests into a powerful new banking arm to be called Boeing Capital (BCC). Observers at Farnborough say it is the clearest evidence yet of the US giant's determined bid to squeeze value out of every last asset to underpin its future financial performance. It is being floated on the back of McDonnell Douglas Finance (MDFC), one of the more buoyant assets acquired in 1997 when Boeing took over its ailing parent.
BCC president Thomas Motherway says Boeing's board of directors decided to bolt its existing defense and space project finance and customer finance operations onto the 30-year-old MDFC and relaunch it as a significant player in the competitive capital equipment finance markets. Prior to the Boeing takeover, MDFC routinely generated a 16% return on equity.
"Boeing sees financing as a business in its own right from which it can profit," says Motherway. "Its aim will be to provide financial solutions, work alongside third parties, provide debt and lease products and manage and underwrite syndicated loans. As such, it is expected to closely resemble the aircraft and shipping lending activities of lead commercial banks."
Inherits
Although it inherits MDFC's existing debt rating, BCC is initially consolidated on the Boeing balance sheet and has portfolio assets worth $4 billion. Later, he says, it will be separately capitalised and able to leverage lending activity to a ratio of 6:1 through loan growth of 15% a year. With 85% of the world's civil aircraft carrying the Boeing logo, chief executive officer Phil Condit wants to add "a financing component to Boeing's expanded, bundled services by taking advantage of this dominant market position," explains Motherway.
Similarly, BCC will expand its capabilities within the buoyant operating lease arena as well as by diversifying its portfolio into financing non-aviation capital equipment. Trading on the Boeing franchise and global reputation, Motherway believes BCC will enjoy immediate credibility. As most aircraft average two owners in their lifespan, the market in funding used aircraft sales will be heavily targeted.
The company already has 120 staff and offices in Long Beach, Detroit, Atlanta, New York and Brussels, mostly from MDFC. There are plans to expand this network into Asia, the Middle East and other centres in Europe. "Our expertise in asset management is considerable and we intend to build on this by expanding into other capital equipment markets," he says.
Source: Flight Daily News
