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Boeing: Actual aircraft financing markets
Looking ahead to 2018, the current Outlook for the Aviation Finance Market predicts another year of steady economic expansion and diversified finance. This is the 8th time in a row that there has been above-trend increase in the number of passengers with historic high seat occupancy and capacity use. The steady increase in market demands combined with the revival of freight transport is drawing new funds and innovation to new financial services channels.
By 2017, the large manufacturers' large share of internal exports remained unused due to various barriers. In the context of sound trading conditions, aviation funding developed further and created new, additional capacities through the reinsurance business and the targeted use of international ECAs. Over the next few years, these new resources are likely to develop into integrated aviation financingsolutions.
In 2018, Boeing expects to see significant and effective cash from various sources and easy entry for shareholders to help sustain new airframe shipments at all-time highs. Aviation leasing is continuing to expand in terms of total volume while holding a 40 per cent stake in the worldwide aviation industry. It has promoted innovation in structuring that contributes to the differentiation and management of risks across all age groups.
This structure should ease the solvency of the portfolios and enable a more effective asset allocation and control of remaining assets. It should allow greater availability of finance to lessees on both secure and uncovered marketplaces. In 2017, the overall level of business activities on the financial market declined, due in part to a reduction in airline exposure and improved levels of banking credit.
70 per cent of the total amount was attributable to lenders who had access to the open capitals in order to fund their portfolio of uncollateralised debts and asset-backed securities (ABS) issues. It is our expectation that the value of the equity will tend to rise in 2018 as leasing companies keep using the floor area as their main funding medium. It is expected that new entrants to the fund will further encourage the use of equity and EETC.
In 2018, corporate financial institutions' indebtedness is likely to increase further as new international financial regulation drifts further into the world. In view of the growing number of players, former Australian, Japanese, Korean, Taiwanese and Singapore based regionals are now playing an important part in the overall aviation world. BCC has participated in the emergence of new markets to provide aviation venture funding as part of its commitment to finding the most effective aviation funding solution for clients.
The BCC worked with Marsh to help create this new business in 2017. Currently, AFIC comprises four underwriters ( Allianz, Axis Capital, Endurance/Sompo International and Fidelis) who provide AFIC Default Protection Policies (ANPI) to provide coverage for a lender's exposure to loan loss, remaining aviation and litigation risk. AFIC's strong position as an insurer makes it an effective financial resource, complementing other new Boeing aviation finance opportunities.
AFIC has helped support more than $1 billion in new aircraft shipments in 2017; given the early strength of this new business, steady expansion is expected in the coming years. Given continued sound financial conditions and a large number of funding opportunities, the level of exports was reduced in another year. Moreover, in 2017, both large producers did not have easy acces to their home country ECAs; in 2018, there is more than likely to be new use.
The Boeing Group has adopted a comprehensive stance and has developed arrangements to fund new shipments of aeroplanes through the use of credit units in those jurisdictions where Boeing has a service basis. Sector-wide ECA volumes are likely to rise from historic troughs to more robust highs in 2018, although it is likely to stay a minimal part of aviation funding as we expect industrial sectors to stay strong and sane.
The Current Aircraft Finance Market Outlook (CAFMO) was prepared to predict the funding source for new aircraft shipments over the next year and the industry's overall funding needs over the next five years.