Essay The Bank Liquidity Crisis and Aircraft Finance
By Ronald Scheinberg
Fewer lenders, higher pricing, yield protection among results of the worldwide liquidity crisis. The liquidity crisis in world ﬁnancial markets precipitated in fall 2008 by, among other things, the collapse of Lehman Brothers, has continued unabated. This crisis has affected the extension of bank credit to every industry, with banks reluctant to make loans so as to preserve their capital, especially in anticipation of deteriorating performance of existing customers/borrowers in the face of the worldwide recession. One industrial sector particularly hard hit by the crisis is the financing and refinancing of commercial aircraft for both airlines and …show more content…
Accordingly, unless the capital markets revive, the acquirers of aircraft are looking primarily to the bank market to supply the necessary ﬁ nancing for their purchases. Banks are already a major source of financing. In 2008, for example, commercial banks provided about 40 percent of all aircraft financing. The bank ﬁnancing market in the aircraft ﬁnance sector has been dominated by European banks, primarily French, German, English and Dutch banks. U.S. banks hardly participate (other than in arrang¬ing or capital markets capacities), and Japanese banks largely exited this sector in the late 1990s.
There are two very distinct bank markets in aircraft ﬁnance. The ﬁrst are traditional asset-based lenders (asset banks). While there is some credit component to ﬁnancings in this sector, the primary focus of these banks is on the assets, that is, the aircraft and engines that they are ﬁnancing (and which serve as collateral security). The second are banks (ECA banks) that provide ﬁnancing based on the support of export credit agencies (ECAs). The ECAs of the United