Shores Up Reserves To Help Airlines Continuing Buying
Planes
Hoping to hold onto existing record aircraft orders, Boeing
plans to ramp up its aircraft financing program in the face of
frozen investment markets and a slumping global economy.
The Chicago Tribune reports Boeing CEO Jim McNerney told
analysts Wednesday the planemaker has moved $9.5 billion in funds
to its Boeing Capital Corp. operation, to shore up so-called
"backstop" financing typically used until airlines can secure
primary loans from banks or aircraft lessors.
Reflecting the current economic crisis, Boeing Capital is also
taking steps towards once-again expanding into a full-fledged
aircraft financing operation, to be used as a last resort for
customers that can't secure primary funding from the credit
market.
Boeing had devoted its efforts over the past several years
towards ramping down that operation, due to the relative strength
of outside capital markets.
"It's very likely that Boeing Capital will do some new financing
in 2009," said Boeing CFO James Bell in a conference call
announcing the company's third quarter financial results.
As ANN reported Wednesday, Boeing posted Q3
2008 income of $695 million, with earnings falling 38 percent over
Q3 2007.
Most of that plunge came from the effects of the ongoing strike
by the International Association of Machinists, which has halted
deliveries of (and customers' final payments for) Boeing airliners.
But Boeing also sees a probable dropoff in its future business due
to the economic crisis, as well as possible mass cancellations of
existing orders.
Establishing a dedicated credit arm
carries significant risks for Boeing, should the airlines receiving
financing go out of business. The airline also runs the risk of
losing money should airlines return their planes beforehand, or
push for more favorable financing terms; Midwest Airlines recently
did both,
as ANN reported.
Though Boeing retains ownership of the aircraft financed through
Boeing Capital until the airlines' chits are paid off, even
carriers in default hold significant influence when the aircraft
lender is also the manufacturer... and doesn't want the hassle of
reselling those airplanes.
That's why analysts expect Boeing to be very selective in
choosing which airlines will be allowed credit. "It will be for
their best customers," said Michael Derchin, airline and aerospace
analyst for FTN Midwest Securities. "It's not for everybody."
US customers account for 71 percent of Boeing Capital's current
portfolio. AirTran Airways is the lender's largest customer, with
$1.46 billion in secured debt against its fleet of Boeing 717s and
737s.