By Doug Cameron
Boeing Co. has found a new source of financing for jetliner orders that are expected to approach $200 billion a year by the end of the decade: insurance companies.
The aerospace company has helped form an alliance of insurers to provide lenders with loan or bond guarantees for jet sales. The new partnership could fill a gap in aircraft financing created by the extended closure of export credit agencies in the U.S. and Europe. Those agencies provide less creditworthy airlines with guarantees that make their aircraft purchases cheape
"This could be the industry's biggest new source of finance," said Robert Morin, a former U.S. Export-Import Bank official hired in June by insurance broker Marsh McLennan to develop the product under the banner of the Aircraft Finance Insurance Consortium.
Only a quarter of new aircraft are paid for in cash, with the balance financed through bank loans and the capital markets. More financing from insurers could attract fresh investors and draw back others who've pulled back from the market, industry experts say.
An initial consortium of four insurers-- Allianz AG, Axis Capital, Sompo International and Fidelis SA--has been assembled to provide guarantees that loans or bonds are paid, replicating the role of the big export credit agencies.
"It's credit insurance on steroids," said Jon Byron, senior vice president at Apple Bank Inc, which co-arranged the purchase of a Boeing 747-8 freighter using the structure for lessor Intrepid Aviation, which is renting the plane to Russia-based AirBridgeCargo.
Intrepid Chief Financial Officer Mike Lungariello said the new program isn't a replacement for export credit financing. Boeing has lobbied fiercely for the return of U.S. export credit guarantees, which have been suspended since July 2015 due to a fight over the program in Congress.
"Export credit remains a necessary financial instrument with large capacity, especially in tight credit markets," a Boeing spokesman said.
Airbus SE customers have also been unable to tap export credit funding, with agencies in the U.K., France and Germany closed to large aircraft business because of a probe into alleged corruption
While Boeing was heavily involved in developing the new finance structure, it could be used by other jet makers as well, including Airbus. "It is another tool to finance aircraft purchases," said an Airbus spokesman
Apple Bank has been regularly involved in export credit deals while poor returns kept co-arranger ING Group NV out of the market for a number of years before being attracted back by the new structure.
Planes such as the 747 jumbo are among the toughest to finance because of a relatively small customer base. Boeing has opted to rent some of the planes in recent years after airlines found them tough to buy with commercial funds.
Norwegian Air Shuttle ASA has been the biggest customer through the new program. Greensill Capital, a supply chain finance specialist, has used insurance-backed bonds to finance six Boeing 737 Max planes for the Norwegian low-cost carrier's leasing arm.
London-based Greensill is a new entrant to aircraft finance, though is active in the broader aerospace industry, running a supply chain finance network for Airbus
Write to Doug Cameron at email@example.com