Aug. 27, 2018, © Leeham News: Boeing is giving financial help to India’s Jet Airways, according to a news report.
This doesn’t come as a surprise.
Jet Airways has 225 737 MAXes on order (50 direct, the rest listed via lessors). It’s also in what appears to be dire financial straits.
Media reports indicated the airline was possibly going to be out of business in 60 days and it deferred releasing its financial results “indefinitely.” The government is going to probe the airline, according to a press report.
The Boeing aid is not common but it’s not unknown, either.
According to the news report, Boeing returned at least some deposits and progress payments. The amount is not reported.
Such aid by Boeing has happened before. India’s Spice Jets received Boeing help several years ago when it teetered on financial collapse. Boeing reportedly provided bridge funding for Indonesia’s Lion Air during a period when it was rescheduling lessor payments, according to Airfinance Journal at the time.
Airbus has similarly helped ailing customers.
When US Airways emerged from one of its two bankruptcies, Airbus provided $250m in capital. It also previously provided a predecessor company, America West Airlines, with financial aid.
Customer financing is not unusual, though the OEMs broadly don’t like to do so because of the balance sheet and exposure issues.
Customer quality for such financing doesn’t have to be for poor credits only, though this is usually the case.
American Airlines ordered 47 Boeing 787s earlier this year; 22 of them are the 787-8. All of these were assigned to Boeing Capital Corp., which will lease them to American for 10 years. These 22 don’t show up on Boeing’s American Airlines backlog website (an obscure accounting rule called ACS 606 is the reason).
American had special reasons for assigning these to BCC for a lease, while the larger 787-9s will be purchased. AA is hardly a weak credit.
A large portion of Jet Airways’ 737 MAX order is with BCC. As we’ve seen, Jet is now a dicey credit.
According to the Airfinance Journal Fleet Tracker, BCC has nearly 200 aircraft leased. Delta Air Lines has 75 Boeing 717s; five more of these are with Hawaiian Airlines and 13 are with Volotea of Spain. In addition to the 787s that will be delivered to American, beginning in 2020, AA now has 32 MD-83s with BCC. There are 14 Boeing 757-300s (12 with United Airlines). There are even seven Bombardier Q400 turboprops leased to Horizon Air, undoubtedly a quid pro quo for some 737 deal with Alaska Airlines.
BBC has sometimes been used as an interim financing vehicle while customers arrange permanent financing. Volga Dnepr used this method for 747-8F deliveries.
Airbus doesn’t have a long-term leasing arm such as BCC. Airbus sells off customer financing assets and at the moment, Airbus Asset Finance has two dozen aircraft—all A340s and A318s, planes nobody else wanted.
Bombardier provided hundreds of millions of dollars in residual value guarantees for its CRJ family—and got burned when it had to make good on the differences between market and book values when airlines began retiring the CRJ200s.
This was a reason BBD refused to make RV guarantees on the new C Series. This helped inhibit sales of the airplane (though there were plenty of other reasons, too).
I don’t have any details about whether Bombardier bailed out any customer, though I suspect that over the decades it has.
Nor do I have any information about Embraer customer financing and stressed support.
But I do know that when McDonnell Douglas Corp. was independent, its McDonnell Douglas Finance Corp (MDFC) did a lot of customer financing. The Boeing 717s now on BCC’s books were originally MD-95s for AirTran, nee-ValuJet, the launch customer of the MD-95.
After the ValuJet DC-9 crash in the Everglades in 1996, the airline was grounded for a time—and un-financeable. MDFC financed all the MD-95s. These shifted to BCC following the Boeing-MDC merger in 1997-98.
So it goes.
When you see an OEM aid a customer, it doesn’t always mean the customer is stressed. It may be unusual circumstances, like an orphan airplane, an interim deal or for some other reason.
But in Jet’s case, the ailing customer is an obvious result.
I think financing is an important tool in matching specific customer needs and realizing strategy. Even governments jump in and corporations take a blind eye on their free market & independence visions.
The EI bank even financed EK 777s (weak customer?) and we have a small companies like GECAS “helping out” customers (using their engines.)
Watch what is happening behind the curtains ,with Etihad talking about cancelling 777x and/or A350..
Well, if this kind of thing isn’t indicating that there’s too many airlines and manufacturers for the market to bear, I don’t know what would be…
I guess the next logical step on from financing airlines in this way would be to operate one, or several. That cuts out a lot of cost associated with selling aircraft. On a similar theme, I sometimes wonder why Emirates doesn’t buy Airbus, or at least a large share. I suppose the various government agencies that worry about monopolies wouldn’t be happy with such ideas.
Which begs the question, should there be more regulation of the air transportation industry to ensure there’s not too much competition?
Why is AA assigning the 788s to BCC while purchasing the 789s? Are the 788s not projected to hold their value long term? Or is it some other reason?
Could the 788s be swapped for 797 in say 8-10 years time ?
Yeah, I’m kind of surprised to hear this for all the talk about Boeing only going for high quality customers for its order books, while Airbus’s mega-sales in that part of the world as being dodgy and doubtful. One of the convenient arguments put up to explain the disparity between the sales numbers.
No need to go full fanboy on this!
Agreed this distorts the situation with weak Airlines.
Mayb e a judgment call if its a short term issue or system, Jet looks to be systemic.
Compare it to Indigo that operates in the same environment and is doing very well.
Spice may not be as lauded as Indigo, but seems to be doing decently and has the Q orders that would work well in hot and high throughout the Country and maybe beyond (I would rather fly a Q400 into Katmandu than a 737 or A320!
It makes sense for BCC to provide financing to Volga Dnepr/AirBridgeCargo (“ABC”) to help keep those 747-8Fs in production. I remember “VD” agreed under a memorandum of understanding from mid 2015 to order up to twenty 8Fs, over several years. Scott, do you have any idea if this MOU is still valid and “in place”? (I hope it’s not scotched by politics, especially as I understand they’re all being delivered to VD’s English ABC subsidiary.)
“My bad”: ABC’s also Russian. I should have double-checked using Google. I wrongly thought it was an English subsidiary.
‘Currently, AirBridgeCargo’s fleet consists of 18 Boeing 747 freighters. The fleet is comprised of eleven of the latest generation Boeing 747-8Fs, four Boeing 747-400ERFs and three B747-400Fs. ‘
Doesnt Boeing do more than provide finance,isnt it more like ‘we buy to lease to ABC’, but at what the market will pay for lease , not a financial return on the capital cost. Perhaps Boeing can start again on the ‘deferred production cost’ provisioning for the 747-8F ?
Scott, You may want to look at your headline; I think there is a typo.
Of course with 737 production dropping, they can’t get airplanes anyway so not an issue!
I do not think Boeing would be at all happy to lose those orders. Short term production issues are just a blip. 200 orders are huge turnover. However it is time to stop the nonsense about who has the best order book. We thought the Air Asia model was a joke. They are still there.
Thats not much planes if it was say over 5 years. Ryanair takes about a months worth of 737s ‘every year’ ( or did so last time I checked)
Boeing could sell any planes Jet didnt take easily. Its the optics that make it look bad
Well the Boeing 737 Plant manager is going to spend time with his family, replaced by the 777X guy.
Along with the KC46, clearly Boeing has a severely thin bench.
Who will replace the guy that replaced the 777X guy when that program runs into trouble ?
And a bit of update on RR and their cost. Note that Scott is featured in the article!
And in general news, a Lab uses Guinea pigs, we use people!
And in quiet 737 moments,
Interesting its UTC, I guess they wanted it right.
And this dilemma though it would seem the other aircraft would be going up and the terrain avoidance would work