Current Aircraft Finance Market Outlook

2013 is the fifth year since Boeing Capital began sharing our aircraft financing market research for the benefit of the broader industry. We
hope you again benefit from our perspective. Click here for a video summary.

Kostya Zolotusky
Managing Director, Boeing Capital

At the end of 2008, in response to the global financial crisis, Boeing Capital Corporation began publicly sharing its forecast for aircraft finance. Over the past four years, the annual release of the forecast has been useful in guiding considerations of aircraft finance and investment. With the publication of the fifth annual Current Aircraft Finance Market Outlook, 2013 is seen as a year best summarized by sentiments of resilience and gradual realignment.

Despite a continuous stream of economic and political challenges, global air travel demand is expected to demonstrate remarkable resilience in 2013. Stable demand growth, along with aircraft replacement requirements accelerated by higher fuel prices, should drive a rising appetite for new fuel-efficient airplanes. We expect that the underlying demand and a scarcity of new airplane delivery positions will ensure an adequate availability of capital at reasonable prices to fund new airplane deliveries for the industry in 2013.

Aircraft financing sources should benefit from continued strength of seasoned industry participants in Europe, the increased participation of new and returning entrants, such as banks in Japan, the United States, Australia and Middle East, along with a steady growth in capital markets financing for airlines and lessors. This liquidity is necessary to gradually reduce reliance on export credit as higher fees and equity requirements mandated by the new Aircraft Sector Understanding take effect.

we can translate this forecast into sensible business for all constituents.

Aircraft financing markets should see reasonable liquidity and pricing in 2013, despite a sentiment of uncertainty. Concern will be focused on the impact of higher fees and equity requirements for export credit transactions, along with more expensive and restrictive commercial bank debt. In response to the challenges, the reliance on lessors and capital markets should increase

In 2013, the industry should see delivery of roughly $104 billion worth of passenger jets, with about 95% of the total divided between Boeing and Airbus. There will be important changes in how lessors leverage deliveries, rapidly increasing participation of new and returning commercial banks, declining export credit support, and a significant expansion of capital markets funding. The scope of changes, along with a sentiment of uncertainty, will pressure manufacturers to provide backstop financing for future deliveries. However, developing market fundamentals and manufacturer pricing discipline for backstop support are expected to keep actual funding levels in line with recent history.

Sources of financing for Boeing deliveries in 2013 reflect industry trends of declining reliance on export credit, rapid expansion of the capital markets, and balanced sources of lessor leverage. Global airline deleveraging continues and is represented in the relatively high levels of cash equity contributed. The majority of lessors' leverage should come from banks and capital markets, with only 5% of deliveries to be self-funded using parent companies' balance sheets.

In addition to new aircraft delivery financing, the industry can expect to have approximately $11 billion of refinancing requirements. Financial crises and higher oil prices have limited this market's liquidity and the resulting price disruption between new and used aircraft is attracting additional liquidity from capital markets, asset-focused commercial banks, and private equity investment firms.

Export Credit: Beginning January 2013, higher fees and equity requirements mandated by Organisation for Economic Co-operation and Development's 2011 Aircraft Sector Understanding go into force. Barring any severe shock, export credit support for new aircraft deliveries is expected to decline. Boeing deliveries supported by the Export-Import Bank of the U.S. will be funded in the bank and capital markets. Ex-Im's guaranteed aircraft bond structure is expected to evolve, expanding the market breadth and improving its efficiency.

Commercial Bank Debt: There were meaningful concerns about the future of commercial bank debt in aircraft finance at the beginning of 2012. A sovereign debt crisis was impacting European banks and China was tightening its monetary policy. For 2013, the bank debt market appears stronger and more globally diversified. European banks continue to be important market participants. In response to recent loosening of monetary policy, Chinese banks are more active as the primary financiers of deliveries to domestic airlines. Japanese banks, which have been financing most of the deliveries at home, are now returning to the global markets. Australian and Middle East banks are growing their share of regional aircraft financing. A number of North American banks are also starting to finance lessors using their balance sheets. Despite concern over long-term implications of the new regulations, 2013 is expected to bring an improved commercial bank market.

Lessors: With export credit and commercial bank debt available to fewer customers and at higher prices, more airlines are likely to lease airplanes. More than half of the world airline ﬂeet is expected to be leased before the end of the decade, up from the current 40% share. Increasing leasing demand and historically strong performance of commercial aircraft investments should continue to attract sufficient equity and leverage. Lessors are expected to continue to source most financing in the bank and capital markets.

Capital Markets: The capital markets' contribution to aircraft finance should increase significantly in 2013. We expect continued growth in Enhanced Equipment Trust Certificates (EETC) issuances to expand the market's liquidity and improve pricing. Lessors should continue to evolve their use of the capital markets. The expansion will need to coincide with an evolution of the credit rating agencies' understanding of the aircraft leasing business and the development of rational and consistent rating criteria for aircraft lessors. Rating agencies also have a role in introducing non-U.S. airlines to the efficiencies of capital markets financing and shaping the market for international EETCs relying on the Cape Town Convention. In 2013, the U.S. capital markets are expected to continue to be the primary market for the origination and syndication of aircraft public debt, though regional capital markets should continue to play a growing role.

Current Aircraft Finance Market Outlook
Issued December 2012

The statements contained herein are based on good faith assumptions and provided for general information purposes only. Certain of these statements may be “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “should,” “expects,” “forecasts,” and similar expressions are used to identify these forward-looking statements. Such statements are based on our current expectations and assumptions, which may not prove to be accurate. As a result, they are not guarantees and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. These statements speak to events only as of the date they are made and we assume no obligation to update or revise any forward- looking statement, except as required by law. Factors that could cause actual results to differ materially include risks related to U.S. and global economic conditions, general industry conditions affecting Boeing or its customers, liquidity of the global financial markets, Boeing’s planned production rate increases across multiple programs and the overall health of its aircraft production system; and other factors disclosed by Boeing and Boeing Capital Corp. in Form 10-K, 10-Q and other filings with the Securities and Exchange Commission.