(Lexology, London, 4 April 2024) The outlook for the aviation industry in 2024 is more positive than it has been for some years, despite the significant challenges ahead. To fill the subsequent funding gap, the ECAs (and, indeed, the manufacturers themselves) stepped up to the plate, but are now not needed as much. According to Boeing’s Commercial Aircraft Finance Market Outlook 2023, sources of industry delivery financing for 2022 can be broken down as follows: sale and leaseback:18%; cash:54%; capital markets:9%; bank debt:15%; and export credit:4%. ECA-guaranteed loan products covered only about 4% of new aircraft financings in 2019, substantially down from previous years, principally as a result of the restriction of the operations of UX EX-IM Bank and the European ECAs for several years. By the end of 2021, ECA support had increased to 9% of funding for the industry and nearly 5% cent of Boeing deliveries. Primary ECA financing comes from: Brazil: Brazilian Development Bank – supports Embraer; Canada: Export Development Canada – supports Bombardier and Pratt & Whitney; France: Bpifrance – supports Airbus and ATR; Germany: Euler Hermes – supports Airbus; United Kingdom: UK Export Finance – supports Airbus and Rolls-Royce; and United States: Export–Import Bank of the United States (US EX-IM) – supports Boeing, CFM, IAE, GE and Pratt & Whitney.
Aircraft
Tanzania’s Precision Air Faces Legal Action Over $26 Million ATR 42 Debt to EDC
(Simple Flying, London, 10 February) Tanzania-based regional carrier Precision Air is in a legal battle with Canadia’s Export Development Canada (EDC) for an aircraft financing agreement involving two ATR 42-600s acquired over ten years ago. EDC is claiming about $26 million in unpaid rentals and termination fees. The financial agreement between the two parties dates back to 2012, when EDC provided financial assistance to Precision Air to acquire two ATR 42-600s as part of its fleet expansion plan. The agreement involved Irish aircraft leasing firm Antelope Leasing Finance, which acted as the debtor and held the turboprops as collateral on EDC’s behalf.
ECAs and the airline industry’s financial landscape
(IATA, London, 26 October 2023) Airline finances were a major focus at the World Financial and World Passenger Symposiums. Airlines generally raised more money than they needed during the pandemic and so have good liquidity on the whole, but it is estimated that the industry will need to invest about $5 trillion or some $175 billion per year to achieve its goal of net zero carbon emissions by 2050. Yet the 2023 profit for airlines will be just $10 billion and that is following three years of heavy losses. Clearly, aviation will need to access finance to support its sustainability initiatives. Increasing demand and sustainability mean that money is being spent and airlines are reluctant to raise more capital at the moment because of the high interest rates. Airlines will therefore soon start to access finance again. It is expected that in the United States bond issuing markets will be the most active element. In China and Asia-Pacific, local banks will, as usual, be the main sources for financing while other areas will look more at sale and leaseback as well as export credit agencies.
DeSmog: “UKEF locks us all into more carbon emissions for decades”
(DeSmog, London, 6 April 2023) UKEF has been accused of “locking us all into more carbon emissions for decades to come” by giving so much assistance to the sector. UKEF, a UK government agency, has provided billions of pounds worth of financial support to the high-carbon aviation sector since the Paris climate agreement was adopted in 2015, DeSmog analysis shows. UK Export Finance (UKEF) has effectively subsidised new airports, aircraft, and maintenance, despite stating that the oil-dependent industry is unlikely to begin cutting emissions “materially” until the 2030s. A spokesperson for UKEF, who did not dispute DeSmog’s findings, said: “UK Export Finance supports British businesses, such as the aerospace sector, to export and grow the economy. During the pandemic, UKEF supported the aviation industry with £7.4 billion to safeguard the industry and jobs. “UKEF is working with aerospace customers to help decarbonise the sector. This year we are setting a decarbonisation target for our aviation exposures to help deliver our pledge to net zero transition by 2050. Over half the financial support provided by UKEF since the landmark climate accord has gone to aviation, with Rolls Royce, Airbus, Boeing, and British Airways taking the lion’s share. UKEF offers a range of loans, insurance and guarantees to help British companies secure business abroad. Just one of the 62 deals supported, listed in the agency’s annual reports, came with any climate-related conditions attached. Aviation accounts for the majority of the greenhouse gas emissions currently generated by UKEF’s finance, according to its latest estimate: 8.2 million tons, equivalent to putting 1.8 million petrol-powered cars on the road. DeSmog has previously reported on the significant donations made by aviation-linked individuals and companies to political parties, particularly the Conservatives. Airbus gave a total of £35,000 to the Tories between 2015 and 2018, according to official records, though there is no suggestion that the UKEF financing was influenced by any of the donations.
Embraer closes US$ 200 million EXIM credit facility with Citibank
(ARGS, London, 9 March 2023) Embraer has closed a US$ 200 million credit facility to finance purchases from direct suppliers in the United States. This financing is being provided by Citibank and guaranteed by the Export-Import Bank of the United States (EXIM), the country’s official export credit agency. This credit facility with EXIM and Citibank will support Embraer’s efforts to diversify its credit operations in the aviation market worldwide, providing the company with additional financing options and improving its loan profile.
Lessors & ECAs lead rhuge Air India jet order while Kenya Airways defaults on EXIM
(Reuters, Bengaluru, 15 February 2023) As global aerospace savours a record Air India 500-plane deal cheered by world leaders, it is the turn of leasing companies to line up for a piece of the action. “The large majority of these aircraft are likely to be financed through sale-and-leasebacks with perhaps 20% of the financing come from the (Western) export credit agencies,” said aviation adviser Bertrand Grabowski. Experts say the mainly Dublin-based lessors, who rent jets out for a monthly fee, could play a significant role in financing the Tata-owned airline’s Airbus and Boeing spree. In other news, the Export-Import Bank of the United States issued Kenya a default notice for delayed payment of a $454 million loan that the government borrowed to fund Kenya Airways. The flag carrier defaulted on the part of its $525 million loan from Exim, which the Kenyan government guaranteed. The Kenya National Treasury plans to reduce Kenya Airways’ state funding by $79.8 million, taking it from $239.5 million to $159 million, according to its 2022-23 supplementary budget. The treasury is reducing its support for the flag carrier in line with the government’s strategy to lessen the airline’s dependency on state funds by the end of 2023, although the airline will receive $283 million in financial aid from the state to continue operations.
The French Mistral: The Case of the Russian Sale and Its Aftermath
(SLD Info, Paris, 16 February 2023) France took a financial hit of €409 million ($440 million) as a result of its 2015 cancellation of the sale of two helicopter carriers to Russia, the national audit office said in its report on French arms exports. “In total, taking into account the result of negotiations with Russia, cancellation of payments, payments to Naval Group, modifications and the sale of the ships to Egypt, this transaction cost France €409 million,” the independent office said in its report, Support for Export of Military Matériel. The then French president, François Hollande, cancelled in August 2015 a controversial sale of the Mistral class warships, under pressure from the U.S., central European and Baltic nations, after Russia seized in 2014 the Crimean peninsula from Ukraine. France paid Russia total reimbursement of €949.75 million for cancelling the order for the Mistrals, comprising a core payment of €892.9 million, and a further €56.8 million, the Sept. 15 2015 National Assembly report said. Egypt’s purchase of the two Mistrals followed Cairo’s 2015 order for French weapons worth €5.2 billion for 24 Rafale fighter jets, a FREMM multimission frigate, and air-to-air and naval missiles. Coface consistently made money between 2010-2021, with premiums exceeding claims, the report said, with only 2015 showing a net loss of €82 million due to the claims made on cancellation of the Mistral deal with Russia. The sale to Egypt limited the amount of claim, the report said.
Brazilian ECA to fund Embraer aircraft exports to SkyWest
Brazilian state development bank BNDES and planemaker Embraer SA (EMBR3.SA) have entered a deal for the lender to fund exports of six E-175 jets to U.S.-based carrier SkyWest Inc (SKYW.O), the bank’s managing director told Reuters. Bruno Aranha said in an interview that the loan was modeled as a post-shipment export credit, through which BNDES will fund the exports and SkyWest assume the debt. Aranha said the bank could also help funding exports of Embraer’s KC-390 military aircraft ahead, though noting that such deals could take longer to be completed as they would involve foreign nations and their public sectors.
Trade unions call for a just net-zero aviation transition including ECA support for aviation finance
(IndustriALL, Geneva, 14 October 2022) International and European trade unions welcome a new global agreement for net-zero carbon aviation emissions by 2050, but call for stronger commitments at country level, including on social criteria. No worker or region should be left behind, we need a Just Transition for all! In the run up to the September 2022 41st General Assembly of ICAO, unions worked together to draft joint trade union demands. The working paper submitted to ICAO by trade unions called for a Just Transition for a zero-carbon future which emphasised the need for the decarbonisation of the aviation industry to be managed in a socially responsible way. It called for quality social dialogue, investment into training and the creation of sectoral action plans by social partners with the relevant authorities. In March 2021, unions pointed out that airline passenger demand fell 65% in 2020 compared to the previous year and the demand for commercial aerospace products had also fallen dramatically, resulting in hundreds of thousands of workers in the sectors beening laid off and noting that export credit agency support was critical for restoring employment levels.
US EXIM renews supply chain finance for Boeing
(Global Trade Review, London, 1 June 2022) The Export-Import Bank of the United States (US Exim) has bolstered its support for the domestic aviation manufacturing industry, renewing a US$450mn supply chain finance (SCF) guarantee backing sales to Boeing. Under US Exim’s SCF programme, the government agency granted a 90% guarantee for a US$500mn facility from Citi, allowing the bank to finance payments
