The current European sovereign debt crisis, and its expected impacts on European banks, gives new impetus to aircraft investment opportunities for Middle East investors, Boeing told the region’s bankers and financers here Tuesday.
Speaking at the aircraft maker’s annual financiers and investors conference for the Middle East, Africa and South Asia region, executives from Boeing Capital Corporation, the manufacturer’s product financing arm, outlined the investment potential resulting from what is expected to be a longer-term challenge for European banking institutions.
Europe’s banks have been a significant source of global aircraft financing for more than a decade.
“Middle East economies are generating significant account surpluses, which eventually will translate into the need for diversified investment portfolios. As many Middle East investors have already recognized, aircraft offer a very stable, long-term and predictable investment profile, presenting generous profit opportunities for investors willing to take advantage of them ,” said host and Boeing Capital executive John Matthews, the unit’s managing director for the region.
Boeing said to this point, Middle East banks and lessors have financed primarily air carriers based in the region. However, the company includes the region, with its substantial wealth, as a key emerging source of aircraft financing among global investors.
In addition, the mobile nature of aircraft assets makes them ideally suited for Islamic financing with its fundamental criterion that such investments be asset- based. “Recently we’ve seen significant interest in developing products in order to finance aircraft using Shariah-compliant capital markets investments and we see this trend continuing. With increased demand for affordable alternatives for aircraft financing, we anticipate that these developments will likely accelerate over the next few years,” said Matthews.
More than 80 senior executives from the region’s financial sector were on hand for what was the company’s seventh annual conference focused on commercial aircraft industry developments and related financing market conditions.
In reporting on the region’s air travel market health, the Boeing executives said the Middle East continues to show very strong growth, with the region’s international carriers growing during 2010 at a rate of nearly 18 percent, more than double the world average.
“The region’s airlines have demonstrated great competitive skill. They are very well managed and are growing successfully, so we are confident they will continue to prosper and attract financing for their deliveries,” said BCC executive Kostya Zolotusky, who presented on current market conditions and emerging industry trends.
Supporting the company’s message on the attractiveness of aircraft as investments, Boeing said world airlines overall are in their best financial conditions in many years despite continued global economic challenges and, for some Middle East countries, civil unrest. “Their balance sheets are the healthiest they have been in history. Airlines around the world have been aggressively deleveraging and holding a lot of cash. It should make them less volatile businesses that are able to weather any storms or unexpected shocks better than they have historically” Zolotusky said.
Boeing’s latest long-term market outlook released in June projected a U.S. $4 trillion market for new aircraft over the next 20 years, with a significant increase in aircraft demand over that time. Of those, the Middle East is expected to require 2,520 aircraft, worth about U.S. $450 billion.