|Quoting WGW2707 (Thread starter):|
With the recent announcement of Airbus financing for America West's takeover of US Airways, and a rumor of Airbus financing for United's emergence from Chapter 11, as well as continued bailouts of airlines by GECAS, a subsidiary of General Electric, a maker of jet engines, one has to wonder, is all of this vendor financing really a good idea?
Sorry it's long -- a lot to say!
In general, I think it is a win-win for both parties, and is beneficial in the micro sense. In the macro sense, however, these vending agreements -- particularly with GECAS -- are harming the industry as a whole. In the case of US:
GECAS stands to lose potentially billions
in lost lease agreements and residual aircraft value when their airplanes currently leased to US hit the open market. Thus, GECAS made the decision that their potential risk and exposure from having US teetering on the brink of liquidation (where its been for about the last 2-3 years) is not worth it, and it's better to prop up US than take a chance (a very good one, at that) that US will collapse and leave GECAS holding the bag on dozens of planes nobody wants or can afford at the moment. Thus, in the micro sense, GECAS gets a continual stream of lease payments and security for its aircraft value exposure for a relatively small investment of a few hundred, a small price to pay relative to a US collapse, and US on the other hand gets cash with which to live another day. Win-win.
In the macro sense, however, this is becoming increasingly harmful to the industry as a whole. GECAS is artificially increasing the amount of available capital financing in the open market, through agreements like this with US and to a lesser extent UA
(with which GECAS also faces enormous financial risk and exposure). Thus, by GECAS creating value that wasn't previously there and propping up airlines (read: US) that would probably have already died by now, they are prolonging the inevitable and ultimately keeping capacity in the marketplace that doesn't need to be there. As sad as it is to say it, and as much as I wish nothing but the opposite, a US collapse could have nothing but an enormous positive impact on the industry as a whole as it would overnight remove approximately 8% of domestic capacity. Loads, yields and revenue would go up on every other flight, on every other airline, instantly. GECAS is preventing this by propping up US artificially.
Airbus, on the other hand -- at least in my mind -- is a totally different example from GECAS. GECAS has a true and genuine, existing
financial stake in US and stands to lose potentially billions in a US collapse. Airbus, on the other hand, really doesn't stand to lose too much, at least relative to GECAS, in a US collapse. Their $250M "loan" is really nothing like the GECAS financing, as GECAS is protecting its already very risky investment. Airbus, on the other hand, sees an opportunity to stave off death for an already dying airline, and in the process secure orders for an airplane that thus far has flopped on the international market. By offering essentially what amounts to a bribe (there, I said it, please feel free to yell at me all you want!) they guarantee orders for a new airplane project. I don't equate Airbus and GECAS motivations in the US deal at all.