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Asian and Middle Eastern lenders are taking a larger share of the global aircraft financing market.

New York (AirGuideBusiness - Business & Industry Features) - Mon, Sep 30, 2013

Asian and Middle Eastern lenders are taking a larger share of the USD$100 billion global aircraft financing market as Western rivals step back due to the liquidity crunch and stricter regulations, a senior Airbus executive said. European commercial banks, previously the primary funding source for airlines, have substantially reduced their exposure to the aviation sector after the continent's debt crisis, leaving a funding gap for fast-growing airlines in emerging markets, said Francois Collet, vice president for structured finance at Airbus. "Some European lenders have halved their lending availability for the aviation sector," Collet said in an interview in Dubai. "They have tried to fill the gap by bringing in other regional and local banks and working together in syndicated deals. Traditional banks are now playing the role of arrangers," he said. French banks BNP Paribas, Societe Generale, Natixis and other European lenders said last year they would cut exposure to risky and dollar-denominated assets such as shipping and aircraft financing to meet tougher capital rules and shore up reserves. They have given way to Development Bank of Japan, Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group, South Korean and Chinese banks, as well as Middle Eastern lenders such as National Bank of Abu Dhabi among others. DBJ expects its global aircraft financing business to double in the three years to 2013. "We see Southeast Asian banks developing expertise and there's lot of interest from Japan and South Korea gaining an interest in the sector," said Collet. "They clearly want to grow outside of their region." Singapore Airlines, Malaysian low-cost carrier Air Asia, Japan's All Nippon Airways and Indonesia Lion Air are among companies that have ordered planes worth billion of dollars to support growing passenger numbers. Airbus recently raised its 20-year jet demand forecast, saying the world needed to double its fleet to meet demand. The plane maker says Middle East aircraft orders account for 8 percent of its order book as of end-August. Emirates, which has the largest fleet of A380s, used a mix of funding including bonds, operating leases, US export credit facilities and financing leases to raise USD$5.5 billion in the current financial year. "The challenge for airlines would be to diversify funding sources as growth comes back to the aviation industry," said Collet. Capital markets will also have a bigger role to play in aircraft financing -- it will account for about 14 percent of total jet financing in 2013, up from 10 percent last year, Boeing said in an annual forecast in December. For instance, Dubai-based Emirates has sold two bonds this year - a USD$1 billion sukuk in March and a USD$750 million bond in January - and more are expected in 2014. Pension funds and insurance companies, which have traditionally stayed clear of aircraft finance, are also looking at the sector, attracted by reasonable stability and the long-term nature of the financing, said Collet.


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Publication:AirGuide Business
Article Type:Industry overview
Date:Sep 30, 2013
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