German credit institutions have been major players in aviation finance since the 1980s.
The civil aviation industry is closely linked to the general economy and tends to be very cyclical. History shows that external events and global crises often have an impact on the aviation industry. In spite of this, the market for airplanes is a growing market in the long term.
This positive forecast is primarily based upon two premises:
- the increasing population in Asia (coupled with a relatively strong growth of the economy) throughout the region (China, India, Singapore, Malaysia),
- increasing demand for more modern and efficient aircraft (weight reduction, enhanced aerodynamics, better efficiency in fuel consumption).
Aircraft types relevant for financing
The aircraft financed by Pfandbrief Banks can be grouped into the following four classes:
- ‘wide bodies’: very large aircraft like Boeing B747 („Jumbo Jet“) and Airbus A380 which are used on long-haul and intercontinental routes,
- ‘narrow bodies’: like the Boeing B737 and the Airbus A320 models. These are used for short- and mid-haul distances, i.e. primarily for continental traffic,
- ‘regional jets’ or ‘turbo props’, which are short-haul aircraft, used especially for feeder traffic purposes. The main manufacturers are Bombardier (Canada), Embraer (Brazil) and ATR (France/Italy),
- cargo aircraft, which generally are special types of the larger Airbus and Boeing aircraft
The Civil Aviation Industry – Relevant Participants
- Airlines: use the financed aircraft and generate the cash-flows necessary to repay the loans,
- Leasing companies: approximately one third of the global fleet of circa 20,000 aircraft is under operating lease, that is to say leased by lessors to the airlines.
The Secondary Market
Aircraft are assets offering flexible utilisation options which derive from their advanced degree of standardisation and from the harmonised safety regulations. If an interested party is looking for a particular aircraft type, potential sellers can be traced quickly and it does not require extensive efforts to customize an aircraft for the specific needs of a new airline.
There are basically three scenarios for sale and purchase transactions relating to used aircraft):
- Airplanes as a commodity: some market participants - in particular the big leasing companies – buy with the intention to sell the asset profitably within a short- or mid-term period,
- Fleet restructurings: resulting from the opening of new or the closing of existing routes or the increase or decrease of capacities.
- Airline restructurings or liquidations.