Boeing

Overview

The 2017 Current Aircraft Finance Market Outlook projects another year of steady performance and stable volume from the primary sources of aircraft financing, with strong aviation industry fundamentals driving new financier and investor participation and competitive pricing for buyers of large commercial aircraft.

While the aircraft financing environment continues to be healthy overall, there are some developments Boeing is closely monitoring. These include tighter global bank regulations, lingering uncertainty around export credit in the United States and Europe, and a heightened risk of illiquidity due to regulatory reform and central banks’ remaining capacity to stimulate.

Despite some emerging watch items, the aircraft finance industry is in a healthy state, with ample liquidity, a wide diversity of funding options, and an overall positive outlook for 2017, barring an exogenous shock to the global financial system or the airline industry.

Working together, we can translate this forecast into profitable business for all market constituents.

Healthy aircraft financing markets

Industry funding needs on the rise

Boeing delivery funding stable and balanced

Lessors

Aircraft leasing continues to grow in both size and importance. In 2017, we expect to see the continuance of recent trends, including industry consolidation, rapid portfolio turnover, and the use of innovative structures enabling capital market funds to be deployed as a source of equity. ABS activity has been robust over the past several years, with a growing use of e-notes, and we expect that trend to continue in 2017. We also anticipate that lessors will continue to trade aircraft at a brisk pace, allowing new lessors to grow their fleets and creating room for established lessors to buy new aircraft. Overall, we forecast that lessors will rely on capital markets and bank debt for the bulk of their funding, with many commercial banks using lessor financing as an entry point into the aviation finance space. Finally, our data suggest that in 2017 speculative deliveries as a share of lessors’ overall fleet growth should continue to climb.

Lessors tapping commercial banks and capital markets in equal measure

Capital markets providing lessors with both secured and unsecured leverage

A balanced portfolio sourcing delivers predictable lessor growth

Capital Markets

2016 was another busy year for the capital markets in aircraft finance, with global airlines and lessors taking advantage of record-low coupons to raise more than $45B in secured and unsecured debt. One of the most interesting developments is the continued rise in non-U.S. investor participation in EETCs, a trend we expect to see accelerate moving forward. In 2017, we forecast that capital markets momentum will stay strong as the benefits of the Cape Town Convention continue to be better understood by airlines, rating agencies, and investors around the world.

Capital markets usage balanced

2016 EETCs heavy on U.S. issuance

Cape Town Convention with Aircraft Protocol

Commercial Bank Debt

Despite some regulatory headwinds, commercial bank debt continues to be a leading source of funding for new aircraft deliveries. In 2017, we anticipate that commercial bank volume will exceed capital market funding for both Boeing deliveries and the industry overall. This trend, which is primarily driven by the rising share of deliveries to China, where bank debt is the most prevalent source of financing, is expected to be strong enough to make up for any constraints arising from the Basel framework.

Balance in global aircraft debt markets

Export Credit Agencies

Export credit volume reached an all-time low in 2016, due in part to healthy commercial markets and in part to separate, unrelated interruptions to official export credit support for Boeing and Airbus aircraft. While our 2017 forecast assumes that U.S. and European ECAs will come back online sometime in 2017, resulting in a slight uptick, we anticipate that export credit volume should remain at the historically low levels associated with periods of healthy commercial liquidity.

Ex-Im usage has fallen sharply since 2012

Commercial markets are more efficient than export credit

Methodology

We created the Current Aircraft Finance Market Outlook (CAFMO) to provide a forecast of the sources of financing for new commercial airplane deliveries in the coming year and the industry’s total delivery financing requirements over the next five years. Each year, we strive to improve the CAFMO, with the aim of enhancing its utility.

What is the Current Aircraft Finance Market Outlook (CAFMO)?

Methodology and definitions

Sources of industry delivery financing

Sources of Boeing delivery financing