Aircraft financing “robust,” but ExIm Bank needs reinstatement, Boeing says

March 5, 2018, © Leeham Co.: Global financing for new and used aircraft is as robust as it’s ever been, says the president of Boeing Capital Corp.

Tim Myers, president of Boeing Capital Corp. Boeing photo.

Tim Myers, speaking to reporters on a telephone press conference today, said new sources of financing, more of it and innovative structures are here to support record levels of aircraft deliveries and used aircraft financings.

Even so, he calls for the reinstatement of the US ExIm Bank as a source of funding support in the future.

Robust financings

“We are extremely excited about what’s happening here. It’s more robust than I’ve seen in my [30 year] career.

“In terms of the sheer numbers of participants, there’re very diverse options for financing for our airline customers and for the leasing companies that are a big portion of our skyline,” he said.”

Boeing Capital Corp annually assesses financing market liquidity with its classic red-yellow-green chart. Source: BCC.

There’re a number of diverse players.

Myers said part of the expansion of financiers is because the market “is very, very healthy.”

Global airlines over the last six years have reported $130bn in profits, he says. It’s also a steady stream of profits. Airlines are deleveraging balance sheets. Myers also said “the asset class is real.”

This means airplanes are solid and fungible assets that attract investors.

“It’s not a niche class anymore,” Myers said. “This is a stable, growth industry that is driving a lot of players to come in the first time and a lot of repeat business.”

Creating a consortium

Myers also pointed to innovative financing. Boeing created a new concept, a consortium of insurance companies to replace the US ExIm Bank, which was the target by the Tea Party and conservative Republicans in Congress who viewed the Bank as “corporate welfare,” and in effect a subsidy for Boeing.

The Bank, a government entity, was created during the Depression-era presidency of Franklin D. Roosevelt to help US companies sell goods overseas.

Boeing became by far the largest beneficiary by dollars of the Bank, but thousands of companies—many of them small businesses—benefitted. The Bank’s role in providing financing guarantees for Boeing airplanes came under fire when Delta Air Lines targeted guarantees for rival Emirates Airline at below-market rates.

ExIm later revised its rates and fees to be commercially on a par with airlines and lessors that don’t use ExIm. Over the course of its history guaranteeing Boeing financings, one a few airlines defaulted. During the same period, ExIm returned money to the US Treasury every year.

During the height of the Great Recession, ExIm provided financing support more than 30% support for Boeing airplane deliveries—all supporting US jobs.

But the Tea Party and Republicans proceeded to kill any ExIm guarantees over $10m. So Boeing created AFIC (A Finance Insurance Consortium) to fill in.

Four principal insurance companies essentially provide the role ExIm did, guaranteeing payments. AFIC already provided more than $1bn in financings, representing about 2% of the needs last year. Myers expects AFIC to provide about 5% of industry financing this year.

Reinstate ExIm Bank

Myers said it “is extremely important to get ExIm back up and running,” anticipating that some day, there may be another economic period in which this kind of backstop funding is needed.

Myers said financing in the used aircraft market is better than in recent years.

During the Great Recession, the industry often found it difficult to find financing for aircraft as little as 10 years old. Lack of such financing puts pressure on new aircraft financing, Myers said.

“We’ve seen real growth and innovation” for used aircraft financing, he said. “The asset-back securitization market is strong and thriving with used aircraft. Overall, we couldn’t be happier about what’s happening.”

9 Comments on “Aircraft financing “robust,” but ExIm Bank needs reinstatement, Boeing says

  1. I think Boeing is right. The World finance industry can look after aircraft deliveries very well. An EXIM bank is need to the times of deep depression to save jobs and corporations. In my belief subsidizing exports distorts markets. The Delta/Emirates issue is valid. This needs a lot more thought.

    • Boeing loves ExIm because they use even more opaque accounting.

      Think program accounting on overdrive and thats how ExIm does business.
      Of course they had to have a taxpayers bailout before and almost certain to do so again. Airline ordering booms are followed by busts.

  2. Its good to see Boeing pulling its finger out and actually working to put together a commercial alternative to ExIm and have success with it.

  3. “Over the course of its history guaranteeing Boeing financings, one a few airlines defaulted. During the same period, ExIm returned money to the US Treasury every year.”

    Just because ExIm returned money does not mean that these “profits” are risk-free. At the end of the day, the only reason airlines borrow from Exim is because they can get better terms than from other sources of funding – better terms can mean lower interest rates or higher debt funding ratios. At the end of the day it is the US taxpayer taking the risk and almost certainly earning a lower return than other lenders (other than Exim’s cost of capital is lower than even the most secure lender giving it a bit of an advantage).

    • I suspect there is at least one reason that has not been mentioned, which explains why the Exim bank can offer loans to people that have difficulty in getting loans elsewhere.

      The US Government has collection capabilities on bad debts that other lenders can only dream of !

  4. The private banks in NYC gets the business one way or another if Ex-Im is closed. Having Ex-Im bank functioning put pressure on margins. Most likly will Ex-Im bank rise from the ashes as the EU corresponding goverment financing gets going after their problems. Just wait until the Chinese goverment start export financing Boeings and Airbuses assmbled in China for export, then it can get really interesting.

  5. There you go,no need for exim after all.Meanwhile the Canadian government is desperately trying to chase down a bizjet stolen by the Gupta brothers.The supercycle will end one day and US and EU will be pleased that they were unable to lend during this period.

  6. The ironic twist to this was during the recessions (2008) Boeing financed aircraft itself.

    You do have to ask yourself just how necessary tie EB really is to Boeing.

    Heavens forbid maybe they buy back a few fewer shares?

    Less bonus to the uppers.

    Buy us some cake?

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