The effect of recent changes in the financial sector on aircraft financing

Abstract

Recent turmoil in the global economy has shattered the foundations of aviation financing. The first major shock to the aircraft financing industry was the late 2000's financial crisis. Just as the industry was recovering from the credit slump, it was hit by another blow as problems in European bank lending started to unfold. The European Sovereign Debt Crisis has caused several European banks, which were once the cornerstone of aviation lending, to withdraw from the market completely. As a result, airlines faced difficulties in raising finance. This report begins with a general overview of the aircraft financing industry. This is followed by an analysis of the effect and changes of both the financial crisis and the European Sovereign Debt Crisis on airlines and their ability to raise finance, with particular focus on the financing of aircraft on the primary market. The scope of this study is to examine whether new players will enter the market and new finance vehicles be developed in order to bridge the potential 'funding gap', or whether the industry will continue to witness the collapse of highly reputable airlines. This study also takes a look at the regulations affecting the players in the industry. Players in this market are being challenged to achieve an economically sustainable airline industry and rebuild its future. Through research and analysis of past changes to aircraft financing methods the author also seeks to predict future trends for the aircraft financing industry. Finally, this study demonstrates the strength of the industry and its resilience to withstand major economic downturns, acknowledging that it will continue to maintain an important role for economies.