As Middle East investors continue to take advantage of growing commercial aircraft financing opportunities, knowing more about the inner workings of aircraft investment will be a key to maximizing participant value, financing executives from aircraft maker, Boeing, told a gathering of regional financial risk management leaders here today.
The U.S. aircraft maker joined with its customer and UAE national carrier, Etihad Airways, and the National Bank of Abu Dhabi, Boeing’s newest working-together partner for aircraft financing, to co-host the region’s first-ever Chief Risk Officer (CRO) Aviation Summit at the Shangri-La Abu Dhabi hotel.
“We sought a diverse group that could talk authoritatively on behalf of the investment attractiveness of all large commercial aircraft, and not just those we produce,’ said Rich Hammond, senior director for the Middle East, African and South Asia region of Boeing Capital Corporation (BCC), the manufacturer’s financing arm and an event co-host. “It was about appreciating the market opportunities overall, based on commercial aviation’s demonstrated worth as a superior-performing asset class,” Hammond said.
Boeing regularly hosts aviation bankers at events like its annual regional financiers and investors conference, recently held in Dubai, where the audience comprises mostly financiers focused on specific deals and emerging trends.
The CRO Aviation Summit, in comparison, dealt with the considerations associated with managing aircraft-related lending risk and which are the staples of risk management teams – regardless of the assets involved -- at financial institutions worldwide.
Although organized by Boeing, the all-day event offered a non-partisan industry view, presented by a cross-section of leading industry professionals.
Panelists included John Vitale, president of the international aviation consultancy, Avitas; Will Coleman, an aviation financing lawyer with the London-based firm, Freshfields Inc.; aircraft leasing company executive, Christophe Million-Rousseau, of U.S.-based Jackson Square Aviation, and Mark Brady, a sales finance executive at aircraft engine manufacturer, Rolls Royce.
“The region has seen and continues to witness prolific growth in the commercial aviation space. The regulatory challenges on capital and liquidity faced by a number of global financial institutions - and hence their withdrawal from aviation and term project financing - provides an ideal opportunity for well-capitalised regional financial institutions to diversify their book. A conference of this nature, brings together a comprehensive spectrum of market excellence, and provides the ideal platform for risk personnel to enhance their understanding of this industry,” said Abhijit Choudhury, the Group Chief Risk Officer of the National Bank of Abu Dhabi.
Topics included successfully structuring aircraft borrowing agreements, documenting the transactions, including those involving the lender protections provided under the new global Cape Town Treaty covering aircraft financing, evaluating airframe and aircraft engine purchases among others.
“Aviation finance has been a growing area of interest in the Middle East, due in large part to the emergence of the region as a top global hub for passenger travel,” said James Rigney, Etihad Airways Chief Financial Officer. “Our order book, for example, currently stands at 90 aircraft remaining to be delivered, including 41 Boeing 787-9s. As the number of aircraft financing opportunities grow, we need to facilitate a broader knowledge of how the various aircraft financing structures work and how the risk should be managed by lenders and equity contributors from the region, in order to mitigate these risks and maximize value for both ourselves and our investors.”
Boeing reported last month that Middle Eastern financing sources nearly doubled their Boeing aircraft investments year over year as regional capital sources – like those in other parts of the world including China, Australia and Asia – have stepped in to supplement lower airline lending by Europe’s commercial banks, many of whom have been impacted by the continent’s sovereign debt crisis.
“The Middle East banks have done billions of dollars recently in aircraft financing. We are working with them to share our market perspectives and knowledge and to compare notes on how we can better work together, because if they’re successful in this business, it will benefit them, our customers and us. Clearly, institutional participation over the long term, rather than a deal focus, is what we’re trying to achieve,” said Kostya Zolotusky, BCC’s managing director for capital markets development and leasing and one of the company’s presenters at the summit.
The Middle East is projected to become one of the largest aviation markets in the world over the next two decades with Boeing estimating the region will need 2,370 commercial jet aircraft, with a value of $470 billion, between now and 2031.