Boeing

Overview

The 2018 Current Aircraft Finance Market Outlook forecasts another year of stable growth and funding diversification. The aviation industry has shown an exceptional level of resiliency in an environment of continued geopolitical and economic uncertainty, demonstrating the strength and value of air travel. For the eighth straight year, passenger traffic saw above-trend growth with historically high load factors and aircraft utilization rates. This consistent demand growth, along with the resurgence of air cargo, is attracting new capital and innovative ways to access new financing markets.

In review, 2017 saw domestic export credit remain largely untapped by the major manufacturers due to various obstacles. Against the backdrop of healthy commercial markets, aircraft finance evolved, creating new, incremental capacity through the insurance market and the selected use of global export credit agencies. In the years ahead, these new sources are expected to mature into integral aircraft financing solutions.

Despite macro-economic and geopolitical concerns, the aviation industry has continued to deliver exceptional results and adjust to external dynamics. For 2018, Boeing forecasts strong and efficient liquidity from diverse markets and ready access by investors to support record new aircraft deliveries.

Leasing

Aircraft leasing continues to grow in absolute size while maintaining a 40 percent global market share. We expect lessors to sustain their growth throughout 2018 while taking advantage of record demand and strong liquidity. The ABS market remains an important alternative for lessors to sell and/or finance portfolios of aircraft; it has fostered innovative structures that help differentiate and manage risk profiles of all ages of aircraft. These structures are expected to facilitate portfolio liquidity and create more efficient risk management of aircraft residual values. This should allow lessors broader access to financing both in the secured and unsecured markets.

Capital Markets

Capital markets saw an overall decline in activity in 2017, partly due to airlines deleveraging risk and greater access to bank debt. Lessors accounted for 70 percent of the volume as they accessed capital markets for unsecured debt and ABS issuances to finance their portfolios. We anticipate that 2018 will see an upward trend in capital markets volume as lessors continue to use the space as their primary source of financing. We expect new institutional investors entering the market to further stimulate the use of capital markets and EETCs.

Bank Debt

Commercial bank debt is expected to continue its resurgence in 2018 as new global banking regulations drift further into the future. This delay has generated additional liquidity with attractive terms. Looking at the growth of bank participants, former regional banks from Australia, Japan, Korea, Taiwan, and Singapore are now serving an important role in global aircraft finance.

Bank debt

Aircraft Finance Insurance Consortium (AFIC)

As part of its charter to find the most efficient aircraft financing solutions for customers, BCC engaged in new market development to bring insurance risk capital to aircraft finance. BCC collaborated with Marsh to facilitate the creation of this new market in 2017. AFIC currently consists of four insurers (Allianz, Axis Capital, Endurance/Sompo International and Fidelis) that issue an AFIC non-payment insurance policy (ANPI) to cover a lender’s credit, aircraft residual and jurisdiction risks. Marsh manages and administers the ANPI platform from business origination. Due to the strength of the insurance companies, AFIC is an efficient source of financing that complements other new aircraft funding markets for Boeing. More than $1 billion of new airplane deliveries in 2017 were supported by AFIC; given the early success of this new market, stable growth is projected over the years to come.

AFIC chart

Export Credit

With markets remaining healthy and numerous financing options available, export credit volume saw another year of decreased use. In addition, both major manufacturers lacked access to their domestic export credit agencies in 2017; 2018 should more than likely see renewed use. Boeing has taken a global approach, developing agreements to finance new aircraft deliveries via ECAs in countries where Boeing has a supply base. Across the industry, ECA volume will likely increase from historical lows to more stable levels in 2018, though it is expected to remain a marginal share of aircraft financing as we anticipate commercial markets will remain healthy and resilient.

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.