Increased requests for financing from airlines and lessors mean the US Ex-Im Bank is having to broaden its traditional role in aviation finance by providing direct loans and support for pre-delivery payments as well as used aircraft financing.
"We have always had the ability to do direct loans, but we have always preferred to do guarantees so as not to compete with the commercial market," says Robert Morin, vice-president of Ex-Im's transportation division. "But in the current environment, if [commercial] banks won't do the deal then clearly Ex-Im will step in to do the loan rather than jeopardise the asset and [related] jobs."
Likewise, Morin says it has always had the ability to support PDP payments and used aircraft, but again, has preferred to allow the commercial market to do so.
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Already this year the bank has stepped in to provide direct loans to two customers after financing from lenders fell through on both transactions. "The lenders were unable to close on the original terms agreed, so to make sure the deals got done Ex-Im provided direct loans," says the bank. The two loans total $165 million to finance Boeing aircraft. According to Wachovia research, in 2008, Ex-Im made direct aviation loans totalling only $12 million for Sikorsky helicopters.
Morin warns: "Banks cannot expect to keep pushing up margins, which are now at Libor plus 100 compared with Libor flat previously, as there are other sources of funding available. If the alternative to Ex-Im funding the loan itself is to guarantee a loan with an unreasonable margin, putting the airline and taxpayer at risk, that is unacceptable."
Late last year, Ex-Im provided a loan guarantee to Union Bank of Nigeria on behalf of Arik Air for an unidentified number of used Boeing 737s. Of around 720 aircraft currently in the bank's portfolio, only about 20 are used.
Regulations allow credit agencies to finance used Category I aircraft (large Airbus or Boeing commercial aircraft) that are not less than four years old for terms of not more than five years. Ex-Im, though, can only help finance used aircraft that have not been previously exported. It says as a result of several US airlines cutting capacity, it has seen a "slight increase expressed in purchasing used Category 1 aircraft".
Source: Airline Business
