This time last year consultants were busy forecasting that we could easily see 200 white tails or unsold new aircraft. Leading bankers warned of funding shortfalls of between $7 billion and $15 billion. And Airbus and Boeing were mocked for saying that there would be no funding gap.
As we get to the end of 2009 it is clear that the manufacturers were right. Toulouse and Seattle are not awash with parked aircraft (although a number of airlines have taken aircraft and parked them until next year) and airlines have managed to fund deliveries.
The main reason the funding gap did not arrive is because export credit agencies were able to step up so brilliantly.
Having predicted 2009 correctly the manufacturers now say we should not be worried about next year. Their main reasons to be optimistic are: export credit agencies are prepared to guarantee a similar amount of debt; the debt and equity capital markets are open; manufacturers have not stepped in to finance; and less cash is needed in 2010.
These are all true.
Whilst they are, understandably, getting a little tired, the export credit agencies are prepared to support another $20 billion in 2010. It looks like they will also be helping Chinese carriers out next year.
Airlines are not able to get PDPs or large syndicated loans, but carriers like TAM have shown that single-B credits can tap the unsecured bond market. US and European airlines have also been able to issue large amounts of equity. The debt may cost more than secured aircraft loans used to before Bear and Lehman but at least it is available.
Airbus and Boeing Capital have had a surprisingly quiet year but are ready to step up in 2010. Most significantly, manufacturers will deliver less aircraft next year including fewer expensive widebodies.
In 2009 airlines were expected to need $68 billion to finance deliveries. Next year the figure will be below $62 billion.
But – and this is an important but – it is too early to be confident. In fact a significant number of very senior and knowledgeable bankers are very worried about next year. They may have called the gap wrongly this year but could be right next year.
Although there are clear signs that banks are recovering is quite likely that we will see less lending. Many banks that have stopped lending stuck by commitments agreed in 2008 – and they deserve credit for doing this. While some banks hope to start lending again (like Lloyds) many others won’t close deals in 2010.
The biggest danger is that a single major carrier will become bankrupt.
Think Swissair. Many banks stopped lending straight away and moved out of the market. Committed aircraft finance banks reduced lending because staff were tied up restructuring deals. Most importantly, export credit agencies (which are all arguably understaffed in relation to the number of deals they close) had to spend many hours negotiating deals and placing aircraft.
So far in this downturn we have not seen a major default. The collapse of one big non-home country carrier could cause the funding gap to arrive faster than anyone is predicting.
It is terrifying to think that the whole market could be shut if just one major airline runs into trouble. Especially since this has happened in every aviation downturn.