October 20, 2008 / 2:08 PM / 10 years ago

UPDATE 1-Tight credit spells trouble for aircraft makers-analyst

(Recasts; adds analyst comments)

Oct 20 (Reuters) - The availability of financing, mainly for new commercial aircraft, will dwindle in 2009 as lenders worldwide pull back amid a credit crisis, according to an analyst at J.P. Morgan Securities.

“We believe that leasing companies and banks, which represent about 60 percent of the aircraft finance market in 2008, are likely to pull back substantially, which could create a $10 billion to $20 billion funding gap,” analyst Joseph Nadol wrote in a note to clients.

The costs of financing have risen significantly, particularly over the last several months, he said.

Nadol believes bank debt is an important slice of the aircraft financing pie. The credit turmoil and the weakened state of banks worldwide may reduce their participation in financing over at least the next couple of years, he said.

Even though export credit agencies, including the Export Import Bank in the United States, will step up financing, they are unlikely to be able to fill the entire funding gap, he said.

New financing sources could include sovereign funds and regional banks. “Middle Eastern and Asian sovereign wealth funds have shown an increasing interest in aircraft finance in recent years, and these players could increase their participation in 2009,” Nadol said.

“We believe that regional banks such as those in China are likely to step up to provide financing for deliveries to local carriers.”

2008 COVERED; RISK IN 2009

Boeing Co (BA.N) and European planemaker Airbus EAD.PA deliveries for the rest of 2008 are largely financed as most large commercial deliveries are financed about six months in advance, Nadol said.

But the companies will deliver about $65 billion of large commercial aircraft next year, most of which would need financing, he said.

“Financing could be an issue for deliveries beginning in the first quarter and particularly as we move into second quarter and beyond,” the analyst said.

Though Boeing has been planning to re-enter the finance market after not financing any new aircraft in 2007 or 2008, it may find itself faced with the choice of financing far more aircraft than it had anticipated or decreasing production, Nadol said.

Financing options for buyers of business jets too have tightened, but in contrast to large commercial aircraft, a smaller percentage of deliveries need to be financed, Nadol said.

The business-jet market is financed largely by U.S. banks, distinguishing it from the large commercial-aircraft bank-debt market dominated by European players, the analyst said.

Several marginal business-jet financers have exited the market, but major players including Bank of America (BAC.N) and JPMorgan Chase (JPM.N) have remained active, Nadol said.

Although some problems have been factored into commercial-aerospace stocks, there is risk of a further slide if and when news related to production rate cuts and lack of capital arrives in the first half of next year, he said.

“However, from a long-term standpoint, we view most of the commercial-aerospace stocks as opportunities at current levels.” (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Anil D’Silva, Pratish Narayanan)

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