DVB Bank predicts 10% of deliveries cancelled or deferred
By David Kaminski-Morrow
Germany's DVB Bank is expecting at least 10% of scheduled new aircraft deliveries this year will be cancelled or deferred because of a lack of funding arising from the economic downturn.
Frankfurt-based DVB Bank, which has a division specialising in aviation financing, believes credit problems will have a "stressing effect" on the availability of funds.
It estimates the value of deliveries this year at $73 billion but managing board member Bertrand Grabowski says "at least" 10% may be affected in order to "restore some kind of balance" between supply and demand for financing.
"As manufacturers will try to avoid white-tails at any cost, the cancellations and long-term deferrals may have to result in the reduction of production - especially when it becomes clear towards year-end that demand will not see a strong, short-term recovery," he adds.
Grabowski claims that certain primary carriers, along with Chinese airlines and the main Middle Eastern operators, will not have trouble accessing funds.
But these only acount for $30 billion in orders and export credit agencies, he says, will be able to provide only another $15 billion.
"To expect banks...in the absence of capital markets to absorb up to $28 billion of new-deliveries financing is wishful thinking," adds Grabowski.
"Manufacturers' contribution to funding, for both accounting and credit crunch reasons, will remain symbolic."
He adds that there will be little impact from regional bank financing, with the possible exception of certain Chinese institutions.
"We are seeing prime and non-prime carriers offering sale-and-leaseback opportunities, or simple mortgage loans, at advance rates and pricing levels that are very attractive to the financiers," says Grabowski.
"As a result, a significant portion of the global bank lending capacity may be moving away from new deliveries financing. The expectation that this cash eventually will go back to the manufacturers to pay for new deliveries some way is wrong.
"Most of the liquidity generated from sale-and-leaseback transactions and refinancings will serve to pay for other expenses, such as margin calls on fuel hedges, to increase cash hold-backs at credit-card service companies or simply to serve current debt services in an environment of weakening operating cash-flows."
© Reed Business Information 2009
