Airline Carriers Can't Buy What Boeing and Airbus are Selling – Part Two

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As we outlined in Part One, Boeing and Airbus — and their supply chains — are optimistic that they can keep cranking out planes and sell them. On the other side of the equation, airline carriers need new planes, as a growing percentage of the planes in their fleets are nearing 20 years old.

The WSJ article linked to above quoted Henri Courpron, chief executive of International Lease Finance Corp. “Addressing the recent spate of big orders of 100 to 400 airplanes by individual carriers, Mr. Courpron joked that they are ‘proof that there are still a number of egos running airlines around the world.’”

Which leads us to quite a worrisome issue — these egos may be ordering without a secure method of payment. The FT recently reported that a survey showed that 22 percent of major airline carriers are “not very confident” about how they’ll finance this year’s aircraft purchases.

This is mainly because European banks have been the main lenders to airline carriers, and now their willingness and ability to lend at pre-2008 rates has dried up. Because of the recent Eurozone crisis, EU banks — especially French ones — have had a hard time securing USD-denominated funding, according to the FT. (Planes are usually bought in US dollars.)

With major Western carriers suffering from a host of problems, this can’t be good news. They may be forced to markedly change the way they finance their purchases, including looking toward the bond markets, said Paul Sheridan of Ascend, the agency behind the survey.

In the end, this market of buyers and suppliers will likely find a balance. Austerity will continue to take its toll on airline carriers, and margins will undoubtedly be shrunk, even if only in the short- to medium-term. But those carriers that remain solvent will find creative ways to finance their planes, while OEMs’ production overestimates and backlogs will likely result in an appropriate number of planes being delivered.

If anything, we are seeing Boeing and Airbus’ recent optimism encountering some turbulence for the first — but certainly not the last — time.

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