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Gulf banks taking a larger slice of plane financing market

by internationalbanker

By John Manning

A top executive from Airbus has said that western lenders are stepping back from aircraft financing and Asian and Middle Eastern lenders are stepping into the gap. The $100 billion aircraft financing market is facing a withdrawal by western lenders due to stricter legislation and the liquidity crunch.

Europe has traditionally provided the main funding for airlines but banks have decided to reconsider their exposure, primarily due to the debt crisis. Speaking in Dubai, Francois Collet, vice president for structured finance at Airbus said, “Some European lenders have halved their lending availability”.

The decision to curtail exposure by European banks has created a funding gap which has been quickly plugged by their Asian and Middle Eastern counterparts. Last year French Banks and other European lenders stated that they would be cutting their exposure to risky sectors such as shipping and aircraft financing to shore up reserves. They have tried working in syndicated deals but banks such as Development Bank of Japan, Sumitomo Mitsui Financial Group, National Bank of Abu Dhabi together with South Korean and Chinese banks are already developing the expertise to provide the funding. DBJ stated that they expected their global aircraft financing to double over the next three years.

Singapore Airlines, Air Asia, All Nippon Airways and Lion Air in Indonesia have already ordered planes worth billions of dollars to meet the increase in passenger numbers. Airbus has also raised its 20 year jet demand forecast and said that the world needs to double the existing fleet to meet growing demand. Plane-makers reported that Middle East orders for planes represent 8% of the total backlog, as of the beginning of September.

The largest fleet of A380 superjumbos belong to Emirates Airline. They have raised $5.5 billion in the current year using a mixture of funding including bonds, operating leases, US export credit facilities and financing leases. One of the issues facing the airline industry is diversifying funding as the industry returns to growth. Emirates Airline is a good example of a company using different financing means. Emirates sold a $1 billion sukuk bond in March and a $750 million bond in January and it is expected that the sale of bonds will dramatically increase next year.

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