Many Airlines that ordered aircraft druing the recent boom will have a hard time getting financing, the curent crises hit the banks and leasing companies badly. The funding gap might be $20 billion according to JPMorgan.
Boeing and Airbus can't hide behind their enormous backlogs (that will probably take hits too..). Order books being "exposed" to a limiitted number of oil rich Middle East Carriers vs Western carriers doesn't look so bad anymore..
Anyway both risk a serious cash flow hit next yr, more money going out then coming in.
SEPilot From United States of America, joined Dec 2006, 7364 posts, RR: 51
Reply 2, posted (6 years 7 months 3 weeks 4 days 18 hours ago) and read 20354 times:
Quoting SU (Reply 1): Bad planning? If I am going to buy $150M asset next year - I better have proper financing plans - taking all the risks into account.
But even if financing is lined up, if the company doing the financing doesn't have the money then you're back at square 1. Nobody has that kind of money just sitting around, and if unforeseen things happen the best laid plans can fall apart.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
FlyingAY From Finland, joined Jun 2007, 740 posts, RR: 0
Reply 3, posted (6 years 7 months 3 weeks 4 days 18 hours ago) and read 20355 times:
Quoting SEPilot (Reply 2): But even if financing is lined up, if the company doing the financing doesn't have the money then you're back at square 1. Nobody has that kind of money just sitting around, and if unforeseen things happen the best laid plans can fall apart.
KC135TopBoom From United States of America, joined Jan 2005, 12276 posts, RR: 51
Reply 4, posted (6 years 7 months 3 weeks 4 days 18 hours ago) and read 20358 times:
Quoting SEPilot (Reply 2): Nobody has that kind of money just sitting around,
Wait, let me check my wallet..................nope, I don't have an extra $20B, either.
I think most of the "stable" airlines, like SA, AA, DL/NW, EK, WN, BA, LH, AF, QF, JL, NH, and others, could have financing already lined up, and paid. That is at leats for purchased airliners from both Boeing and Airbus. I would think those airlines that have arranged to lease new airliners from GE, IFLC, and other leasing companies, may find no financing available at the time of delivery.
Zkpilot From New Zealand, joined Mar 2006, 4976 posts, RR: 9
Reply 7, posted (6 years 7 months 3 weeks 4 days 17 hours ago) and read 20365 times:
There could be some pretty good bargains out there for airlines in a strong financial position... A bit of fleet modernisation perhaps...
I doubt we will see any 77W whitetails as they are in high demand with a backlog. Sure other aircraft are backlogged also but replacing a 737 with a newer 737 doesn't quite have the same cost saving effect as replacing a 744 with a 77W!
PanHAM From Germany, joined May 2005, 10243 posts, RR: 32
Reply 9, posted (6 years 7 months 3 weeks 4 days 17 hours ago) and read 20358 times:
Quoting SU (Reply 1): wait - didn't airlines think of a possibility of not being able to get a credit to finance their deals?
you have to service the loan from the income, the cash flow your investment generates. If that income is no longer there, or reduced, you will not be able to do that, Hence, you have difficulties getting the loan, even if that was previously approved.
Banks always have such provisions in their loan agreements..
MEA-707 From Netherlands, joined Nov 1999, 4438 posts, RR: 34
Reply 10, posted (6 years 7 months 3 weeks 4 days 17 hours ago) and read 20362 times:
I think even while it's a drag for Airbus and Boeing, it will also give some opportunities to iron some of the long backlogs away, to offer more attractive packages to airlines and to cover delays of some programs and due to the Boeing strike.
You already see chain reactions in effect, airlines like Arik and Ethiopian who have to wait long for their 787s and so on, scoop up unwanted new and 2nd hand widebodies from the market.
And for instance with the 737, ATR or A-320; because of the long waiting time to get new airframes in the boom era 2006-early 2008, they have lost some potential orders to a competitor or the second hand market, but now an airline can select fresh and ready made frames which are not taken up by Kingfisher, Skybus, XL and others and this way, they gain long term operators of their aircraft families (replacing the ceasing airlines partially).
I am sure they have a list in file of customers who would (still) be interested in earlier delivery positions and who they can approach with offers they can't refuse, as only 5 months ago many airlines whined they couldn't get the planes they wanted soon enough.
The thing which will be pushed out of the market in this downturn even quicker are the older aircraft like MD-80s, 737-3/4/500s etc while the production levels of new aircraft will not grow as much as they thought, but at least stabilize as the backlogs are still big, even when a third gets cancelled.
nobody has ever died from hard work, but why take the risk?
SU From Russia, joined Apr 2004, 360 posts, RR: 2
Reply 11, posted (6 years 7 months 3 weeks 4 days 17 hours ago) and read 20358 times:
Quoting MEA-707 (Reply 10): I think even while it's a drag for Airbus and Boeing, it will also give some opportunities to iron some of the long backlogs away, to offer more attractive packages to airlines and to cover delays of some programs
Can't agree with you more
Quoting PanHAM (Reply 9): you have to service the loan from the income, the cash flow your investment generates. If that income is no longer there, or reduced, you will not be able to do that, Hence, you have difficulties getting the loan, even if that was previously approved.
That's finance 101 - I would think airline executives would be more careful in today's economy placing an order without proper calculation of risks.
NA From Germany, joined Dec 1999, 11095 posts, RR: 9
Reply 15, posted (6 years 7 months 3 weeks 4 days 15 hours ago) and read 20359 times:
Quoting Zkpilot (Reply 7): I doubt we will see any 77W whitetails as they are in high demand with a backlog. Sure other aircraft are backlogged also but replacing a 737 with a newer 737 doesn't quite have the same cost saving effect as replacing a 744 with a 77W!
Not on a one to one basis, but percentage wise I doubt there is any considerable difference. Also there are many more old 737s out there which need to be replaced than old 747s. A 77W on the other hand costs 150 million bucks more than a 15 year old 744, big money, not to speak of the fact it doesn´t hold as many pax. A 19 year old 744 still represents value, and a cash-stricken airline might think its wiser to keep it rather than paying 230 million they don´t have for a new 77W, especially as fuel prices are down, and unless the economy is getting better soon, it won´t rise to the crazy heights of last July in near term, making a 744 again interesting. Also lets see if we see a 777 operator go belly up soon. I´m sure there will be some 777s in the desert too. There were a number after 9/11, so why not now as the first are dumped even on a regular basis (by CX, SQ, Emirates, China Southern) ?
PlanesNTrains From United States of America, joined Feb 2005, 6261 posts, RR: 28
Reply 19, posted (6 years 7 months 3 weeks 4 days 12 hours ago) and read 20360 times:
Quoting SU (Reply 11): That's finance 101 - I would think airline executives would be more careful in today's economy placing an order without proper calculation of risks.
My wife has worked for the same company for 25 years. They are in restaurants, and just opened a new location. Despite their size (30+ locations) and financial health, they have yet to be able to secure financing for the new restaurant. Going into it, they probably had two choices - not move forward, or move forward and hope the markets loosen up, and they chose the latter. The family has enough money to carry it, but I think the current credit crisis is deeper than many people realize, and while past practices or agreements may have been in place and fine, it all changed relatively quickly.
Anyhow, I think the problem is more acute for the airlines, because it seems that they quite often are arranging financing closer to delivery day, and this can make it a challenge when the economy/crediit markets turn south.
Next Trip: SEA-ORD-DSM on United/OMA-DEN-SEA on Southwest
Marky From United Kingdom, joined Nov 2003, 220 posts, RR: 0
Reply 20, posted (6 years 7 months 3 weeks 4 days 12 hours ago) and read 17978 times:
Quoting Planesarecool (Reply 8): Probably more like a deposit system similar to how we might book holidays. Part fee upon ordering, pay the rest closer to/on delivery.
Thats pretty much correct, deposit on ordering, balance at delivery. Often airlines will order and pay the deposit, and then before delivery arrange financing through a bank or leasing company, so the finance company will pay the balance and own the aircraft and then lease it to the original airline.
RoseFlyer From United States of America, joined Feb 2004, 10387 posts, RR: 52
Reply 23, posted (6 years 7 months 3 weeks 4 days 11 hours ago) and read 17543 times:
Financing normally doesn't get lined up until 6 months before delivery, yet orders are made years in advance.
Quoting Sxf24 (Reply 13): Boeing has publicly said it will not build any white tails. I would expect rates to be reduced instead.
Yes Boeing has stated that it won't build white tails, but Boeing can self finance planes. Boeing Capital Corporation has billions to act as a financer. In the past BCC has financed less popular planes like the 717 and late generation 757s since finance companies didn't want to be stuck with a plane with no resale market. However, BCC might end up financing 777s and 737s.
If you have never designed an airplane part before, let the real designers do the work!
BEYauty From Lebanon, joined Aug 2005, 163 posts, RR: 0
Reply 24, posted (6 years 7 months 3 weeks 4 days 9 hours ago) and read 15912 times:
I work for one of the largest banks in the Arabian Gulf, and we were approached by LH not long ago to finance some of their Airbus aircraft on order which will be delivered in the next few months. When I started talking to LH about it a few months ago, my bank was somewhat eager to do the deal, however now, it's a totally different story. My bank has backed off, and it doesn't look like we have the appetite to finance $100 + million per aircraft. It totally sucks because I was really excited about starting the relationship and closing the deal. Now I wonder how and where LH will be getting their funding, as most banks in the region are in the same situation as my bank.
: It does not strike me as a bad thing to see airframe orders and deliveries slow down a bit. I suspects that accomodations will be made on all sides.
: Airbus reports 119 cancellations so far in 2008. http://afp.google.com/article/ALeqM5i1Pzz4bYZC5nAgNsyrE-Vkwx5oNw How many for Boeing?
: Although none of these have manifestly become "whitetails" yet.... Rgds
: I think 2. There have Boeing has reported 2 cancellations this year. http://active.boeing.com/commercial/orders/index.cfm
: I wonder how many used airplanes A and B owns which they can´t sell?
: Boeing has already said they're pumping cash into Boeing Capital Corp to address exactly this problem, and I have to assume Airbus has something simi
: If an airline has the ability to leverage a 77W, they are building equity and making profit. Building equity and making profit on a 77W makes more se
: Funny. However, when a plane enters the assembly process, it has only 3 possibilities: - to be delivered as planned, - to be re-assigned to a new wil