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Fitch Predicts Slowdown In Aircraft Finance For 2009

by Leroy Baker,, New York

15 December 2008

Concerns have been expressed by Fitch Ratings regarding just how far the slowdown in global economic growth will affect the financing of the commercial aircraft sector in 2009.

Fitch made the announcement on December 9, stating that despite the implementation of lower aviation fuel rates, the industry will still have to prepare itself against the upcoming strains of debt repayments and a significant decline in air travel over the year ahead.

According to the company, 2009 is set to see weaker production rates in both the large commercial aircraft (LCA) and regional aircraft markets.

One of the ratings agency's main concerns is the effect that the economic downturn will have upon aircraft finance. Fitch has calculated that, due to current circumstances, financing required for 2009 deliveries of LCA and regional aircraft could total USD65-70bn.

The company has estimated that aircraft financing will be firm through the first six to nine months of 2009, and will likely be firm through the end of 2009 if there is no further decline in the credit markets. The main risk, it says, is additional losses in the financial sector, leading to reduced credit availability in the second half, which could be a catalyst for additional delivery deferrals in late 2009 and 2010.

Concerns have also been expressed regarding the amount of existing airline debt that is maturing in 2009 and 2010, which Fitch estimates amounts to approximately USD10bn over the two years in the US alone.

However, Fitch has gone on to announce that it expects manufacturers to increase customer financing in 2009 and 2010, estimating that Boeing and EADS (the parent company of Airbus) have the financial strength to finance up to 10% of their deliveries over an 18 month period without affecting credit ratings.

The company also believes that Export Credit Agencies (ECA) will increase their aircraft finance activity in 2009.

Despite its concerns, however, Fitch considers the industry to be well-positioned to weather the downturn from a credit perspective.

According to the company, large backlogs, strong credit metrics, and healthy liquidity support the industry's credit profile, whilst most of the large aerospace and defence (A&D) companies rated at Fitch have strong liquidity positions and financial flexibility, both of which will help the industry stand up to the weaker global economy in 2009.

Given the difficult conditions in the credit markets, though, Fitch has announced that it expects A&D companies to follow conservative cash deployment strategies in 2009 in order to build liquidity, and share repurchases, which totaled approximately USD14bn in the US A&D industry in the first nine months of 2008, should decline.

Lastly, Fitch warned that the airlines' ability to keep enough cash on hand will depend largely upon their methods of spending control and protecting revenue per passenger by managing capacity.

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