Volume 03, Issue 11
|Focus on Finance|
Putting a 'cap' on risk
Lending can be risky business. But lendingand leasingis exactly Boeing Capital Corporation's business. That's why managing risk is a major objective. The market values any company's earning less when there's greater uncertainty. Greater stability, though, leads to greater confidence, better bond ratings, more financial strengthyou get the picture.
Where does risk come from? Consider these hypothetical scenarios.
An airline's passenger traffic and revenues are up, and it needs more airplanes. How does the lender value the aircraft to ensure its value stays above the amount of the loan over the full term of the loan?
Let's talk about risk
Here's a glossary of terms you might hear in risk-management discussions.
Risk management: Understanding and managing the risk or exposures within Boeing Capital's current or future customer-financing portfolio. Those risks include a customer's ability to pay, the value of an underlying asset and the volatility of the market. The risk management process also can be used to decide whether to divest an asset.
Portfolio: For Boeing Capital, this includes the airplanes BCC owns and leases, plus outstanding loans or security investments.
Financial exposure: The amount of Boeing or BCC investment or financing that may be subject to a loss should a customer go into default. If the investment is in an airplane, for example, it would be any difference between the amount of the investment and the amount that can be recovered by BCC's selling or re-leasing the airplane.
Volatility: Variability in the value of assets or the financial health of customers.Or instability or unpredictability in earnings or portfolio value.
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