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.