IBA Shines Spotlight on Aircraft Finance and Leasing in Japan

International Bureau of Aviation (IBA) has returned from banking and lessor meetings in Tokyo where the mood may be cautious, but the underlying trend for considerable growth across the sector is stirring the need for outsourced asset management, valuations, engine consultancy and remarketing expertise.

Earlier this month, IBA met with leading Japanese banks, investors, aircraft lessors, airlines and financiers for a series of structured meetings designed to identify the forthcoming challenges to the aviation finance sector and pinpoint particular exposures or strategic opportunities. Managing director Steve Fisk and commercial director Owen Geach presented IBA’s market overview and the key trend indicators which will affect the market going forward. New equipment and technology, new financing opportunities, engine investment and an aggressive leasing environment appear to be the main areas of future interest.

Currently the cyclical aviation market is facing reduced financing appetite as austere financial measures impact spending in North America and Europe. Key operators are feeling the strain, although the picture is brighter in Asia, Middle East, South America and much of the Pacific Rim and India. Against this backdrop, order books are huge (over 1,400 orders between Airbus and Boeing in 2011 including almost 1,000 A320Neo orders) and sale and leaseback deals are plentiful.

Operators and lessors are confident of finding finance for these orders although senior Japanese financiers believe that export credit agency (ECA) support will remain increasingly important. Lessors are also concerned about the effects of these new aircraft on residual values of older fleets. Engine financing transactions are also a hot topic and on the rise; IBA’s experience with engine appraisals and valuations was interrogated closely.

Forthcoming redelivery and possible repossession issues and procedures will be impacting several Japanese banks in the near future and these are areas with potential for losses. Incomplete documentation and in some case a limited secondary market impacts aircraft remarketing and this is another area which is set to dominate as fleets of aircraft are retired.

Japanese airlines have been looking closely at valuations of their fleet, engines and spare part inventories as they look at outsourcing to streamline their operations and derive maximum value from their assets. IBA’s professional appraisal team has also been responsible for several bank’s valuations on end of lease returns.

Looking ahead, it is clear that new technology in the form of the Airbus A320Neo and the Boeing 737RE will place a new emphasis on maintaining the cost-efficiencies that they promise. There are many new entrants into the finance market and IBA predict a sharp rise in the requirement for airline assessments and asset management.


Related reading

New consumer banking head for Citi Asia Pacific