“Radical change” ahead for aircraft financing, says PwC

Posted on 7 Jan 2013

According to a new PwC report, Aviation Financing – Fasten your seatbelts, the aviation market could be facing one of the most radical transformations in recent history.

As backlogs of aircraft orders reach unprecedented levels, the survey shows lessors and airlines will be battling for the most competitive finance rates.

As of July 2012, the aircraft order books of Airbus and Boeing had risen to 8,500. While financing costs on jets are likely to rise, how this will impact the different parts of the value chain, which includes aircraft manufacturers, airlines and lessors, is still unclear.

One key trend in the report is the shift in financial powerhouses from West to East. European banks are retreating but Chinese, Japanese and US financial institutions are jumping in.

PwC financial services partner, Shamshad Ali, said: “There are a number of headwinds in the aircraft finance market which may make these orders more difficult to finance – and more expensive. With the cloud of economic uncertainty still hovering around Europe, we are seeing banks there retreating from the market and interest from Asian investors increasing.”

PwC also found that airlines in developing countries are buying more brand new aircraft where historically older aircraft would have gone, which could see more of them ultimately retiring in “jet cemeteries”.

Neil Hampson, PwC’s global head of aerospace & defence, added: “The industry is still experiencing unprecedented levels of orders for new aircraft that are more fuel efficient, technologically superior and that can replace ageing fleets. Our research highlights that whilst financing will be available, it will be at a higher price. As competition to secure financing intensifies, the question remains as to who will be picking up the cost.

“As part of our research we discovered more aircraft are being parted out after only seven-eight years service instead of the traditional 25 years, as investors are gaining greater value and returns than if the aircraft remained operational.”