Aircraft Equipment Finance Market
Executive Summary
- Under tightening credit conditions, financiers find themselves in a position to dictate stricter terms while lessors must contend with a growing supply of available aircraft in the secondary market.
- Aircraft equipment leases have been trending away from long-term capital leases, traditionally favored by U.S. markets, and into shorter-term operating leases. Lessors and financiers are more hesitant to enter into long-term deals given the uncertainty that has been present in the airline industry ever since September 11th.
- Older, less fuel-efficient planes were the first ones parked when high fuel costs and waning demand strained budgets and forced airlines to cut capacity.
- Values for older narrowbodied aircraft are crumbling as airlines remove them from service in favor of their newer generation counterparts. Widebodied aircraft values have held up better in comparison to narrowbodies, but their values are under increasing downward pressure in the weakened global economy.
- Production delays at major manufacturers and the machinists' strike at Boeing have been a godsend. The deferred introduction of new aircraft models into the present well-supplied market has been beneficial to the values of newer narrowbodied and widebodied aircraft.
- International demand for air travel has boomed over recent years, and a prodigious number of airlines have sprung up, particularly in the Middle East and Asia. Aircraft demand abroad will remain robust, albeit at a slightly lower level than before the U.S. credit freeze.
- The latest oil shock prompted aircraft and aircraft parts manufacturers to renew focus on fuel efficiency. The transition toward more environmentallyfriendly and fuel-efficient aircraft has begun, as plane manufacturers dabble with alternative fuels and engine-makers work on lowering engine noise and fuel consumption.
- Corporate aircraft sales are generally less dependent on financing than their commercial counterparts, and finance terms in the past have favored the borrower. Nevertheless, under more restrictive credit conditions, finance terms have become less borrower-friendly than they have been in recent years.
- Real GDP in the U.S. is projected to decline for four consecutive quarters beginning in the third quarter of 2008. Exports are expected to decline throughout 2009 as the slowdown becomes a worldwide phenomenon.
- Governments and central banks are working together to unfreeze lending markets, but credit conditions will ease only slowly.
- The U.S. dollar gained strength against most currencies, except the Japanese yen and the Chinese renmingbi, as the European economy weakens amid the financial turmoil.
- Announced production increases at major manufacturers may be deferred as new orders dwindle in the current economic environment. Large backlogs buffer aircraft manufacturers somewhat from decelerating orders.
- Demand for aircraft will come primarily from emerging markets in Asia and the Middle East. A host of new airlines, including low-cost carriers, have come about to serve the increasing population of flyers.
- Narrowbodied and widebodied aircraft will maintain holds on their respective markets. The future introduction of the Boeing 787 and the Airbus A350 opens the door for long-haul flights between smaller markets.
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