Scott Scherer Vice President /General Manager Boeing Capital Corporation

While the ASU has brought together valuable perspectives from various governments and contains advantages for the aviation industry, it also creates issues that may have long-term negative implications on export credit financing with respect to airlines. We believe these issues should be addressed immediately since they create setbacks for international airlines as they execute fleet modernization strategies.

Airlines may have concerns with the following elements identified within the ASU:
    • Higher fees and risk mitigants. The combination of both of these elements in certain situations can be much more severe than current commercial market practices.
    • Reduced fee discounts for the Cape Town Treaty. Cape Town is an important international treaty that strengthens the legal framework for aircraft financing by reducing repossession risk for lenders and lessors. The discount has served as a powerful economic benefit for airlines to convince their respective governments to ratify Cape Town. Lowering the discount diminishes the incentive for airlines based in countries that have not yet ratified the treaty.
    • Ambiguity regarding Home Market Rule. The Home Market Rule precludes export credit agencies from funding airlines based in countries that manufacture aircraft. The ASU lacks clarification on whether or not all countries that have signed the agreement will abide by this guideline.
    • Complex risk assessment process. The process to classify airlines into risk categories needs greater transparency. Establishing a consistent method for export credit agencies to classify airlines across aircraft categories is vital.
    • Classification of the 737-600 and A318 as regional jets. Other comparably sized jets, such as the 717 or BAE146, are considered large aircraft in the ASU. Singling out the 737-600 and A318 creates distortions with respect to pricing and terms as airlines decide on fleet replacement. The Aviation Working Group (AWG), of which Boeing is a member, believes that it is more logical to have one rule set covering both large aircraft and regional jets given that airlines purchase aircraft in both categories.

On behalf of airlines, Boeing is working toward resolving these and other issues via a number of fronts. We are working with the airlines to understand how the ASU might impact them. As the ASU crosses many government agencies, we are working together with our Washington, D.C. office to assist in coordination efforts. And we’re working with the AWG, which is compiling a list of questions and clarifications that we believe require attention

One advantage of the new ASU is that it includes formal interim governmental reviews, which may result in adjustments. Boeing is a strong advocate for an early review to address these concerns. Only when these major issues are sufficiently addressed will the new Aircraft Sector Understanding truly be a significant international economic policy achievement that “levels the playing field” for all aircraft manufacturers and airlines seeking export credit agency financing.

[Future issues of Point-to-Point will include ASU updates.]