Aircraft Financing at Risk
A key measure for a financially healthy aircraft trading and financing market is a growing economy. The housing crisis sparked the global financial crisis begining in August 2007. By September 2008 the Federal Reserve had acknowledged four key developments that adversely play on the ability of lerssors to fund aircraft transactions.
1)
The weak labor market.
The weak labor market.2)Contraction in the housing sector
Contraction in the housing sector3)Slowing export growth
Slowing export growth4)Uncertain inflation outlook.
Uncertain inflation outlook.Collapsing institutions 2007 to 2009.
Many but not all in the aerospace market
Importance in the Company Core Business Aircraft Financing Market
Core Business Aircraft Financing Market AIGInsurance Key player
Insurance Key playerBank of AmericaAircraft lending & leasing Key player
Aircraft lending & leasing Key playerBear StearnsInvestment banking Was a key player for structured financing
Investment banking Was a key player for structured financingCIT Aircraft lessor A key player
Aircraft lessor A key playerCITIInvestment bankingWas a keyplayer
Investment bankingWas a keyplayerDVB (Germany) Aircraft lending & leasing A key player
Aircraft lending & leasing A key playerFannie Mae Mortgage lending Marginal except for market confidence
Mortgage lending Marginal except for market confidenceFreddie Mac Mortgage Lending Marginal except for market confidence
Mortgage Lending Marginal except for market confidenceGoldman Sachs Investment Banking Key player for structured financing
Investment Banking Key player for structured financingHSHAircraft lending A key player
Aircraft lending A key playerILFC Aircraft Lessor Market leader in aircraft leasing
Aircraft Lessor Market leader in aircraft leasingIndimacMortgage lending Marginal except for market confidence
Mortgage lending Marginal except for market confidenceJ.P. Morgan Chase Commercial banking Key player for structured financing
Commercial banking Key player for structured financingLehman Brothers Investment banking Was a key player for structured financing
Investment banking Was a key player for structured financingMerrill Lynch Investment Banking Key player for structured financing
Investment Banking Key player for structured financingMorgan Stanley Investment banking Key player for structured financing
Investment banking Key player for structured financingNational City Bank/PNC Portfolio lending No longer lending
No longer lendingRBS (UK) Aircraft lending & financing Key player now exiting the market
Aircraft lending & financing Key player now exiting the marketWashington Mutual Mortgage Lending Marginal except for market confidence
Mortgage Lending Marginal except for market confidenceWachovia Commercial banking Was a key player for commercial financing
Commercial banking Was a key player for commercial financingThe U.S. Federal Reserve Bank
The Fed, like most central banks worldwide, has undertaken the largest expansion of its lending program for banks since 1929.
Default Swap market
Though no one really knows the size of the credit default swap market nor knows where all these isurance policies taken out to protect against defaults actually are, it is estimated that the total exposure is about $70 trillion dollars - five times the size of the U.S. economy! AIG sold a yet to be determined number of these policies to banks and other financial institutions worldwide. Assuming AIG holds a 20% market share we could be looking at a $14 trillion dollars exposure for this insurer alone. These private contracts cannot be relied upon to support the bonds they were issued to protect in the event of default.
AviationRegister E-Xpert Witness Journal
Interest Rates: Three month LIBOR drops below 0.5% for the first time.
Recession near end: The U.S. recession may be ending but as aviation is a late cycle industry, the turnaround may be in mid-2010 or early 2011.
Recession, who decides? The National Bureau of Economic Research could declare the recession officially ended in Aug/Sept after 22 months.
Recession indicators turning: 7 of the 10 leading economic indicators have been reported for June and some of these may be revised dampening hopes for a recovery.
Economic upturn: Leading economic indicators are not a good indicator of an upswing in the economy, more a guide that a bottom has been reached.
Coincident economic indicators index has been volatile at best which suggest that the U.S. recession may not have ended yet.
Interest Rates: Three month LIBOR drops below 0.5% for the first time.
World trade volumes, a key driver for airline traffic, are expected to shrink 10% this year, the World Trade Organization said.
World exports of merchandise goods grew 15% in nominal terms in 2008 to $15.78Tn, the WTO said in the World Trade Report issued on Wednesday.
WTO reports that trade rose 2% in real or volume terms in 2008 after rising 6% in 2007.
Total world imports rose 15% to $16.12Tn, $345Bn more than exports, due to different ways of measuring imports and exports, the WTO data show.
Air Cargo: The severity of the slowdown was reflected in a fall of 23% in air cargo traffic in December 2008 vs. a year earlier, the WTO said.
Bankruptcy: Kirkland & Ellis bankruptcy attorney James Sprayregen says there don't appear to be any restructurings of major airlines that appear imminent. (September 2009).
