Customer
Financing
Global Investor Forum 2009,
Broughton, 1st & 2nd April 2009
Nigel Taylor
SVP Customer, Project and
Structured Finance
1
Safe Harbour Statement
Disclaimer
This presentation includes forward-looking statements. Words such as “anticipates”, “believes”, “estimates”, “expects”,
“intends”, “plans”, “projects”, “may” and similar expressions are used to identify these forward-looking statements.
Examples of forward-looking statements include statements made about strategy, ramp-up and delivery schedules,
introduction of new products and services and market expectations, as well as statements regarding future performance
and outlook. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events
and circumstances and there are many factors that could cause actual results and developments to differ materially from
those expressed or implied by these forward-looking statements.
These factors include but are not limited to:
• Changes in general economic, political or market conditions, including the cyclical nature of some of EADS’ businesses;
• Significant disruptions in air travel (including as a result of terrorist attacks);
• Currency exchange rate fluctuations, in particular between the Euro and the U.S. dollar;
• The successful execution of internal performance plans, including cost reduction and productivity efforts;
• Product performance risks, as well as programme development and management risks;
• Customer, supplier and subcontractor performance or contract negotiations, including financing issues;
• Competition and consolidation in the aerospace and defence industry;
• Significant collective bargaining labour disputes;
• The outcome of political and legal processes, including the availability of government financing for certain programmes
and the size of defence and space procurement budgets;
• Research and development costs in connection with new products;
• Legal, financial and governmental risks related to international transactions;
• Legal and investigatory proceedings and other economic, political and technological risks and uncertainties.
As a result, EADS’ actual results may differ materially from the plans, goals and expectations set forth in such
forward-looking statements. For a discussion of factors that could cause future results to differ from such
forward-looking statements, see EADS’ “Registration Document” dated 24th April 2008.
Any forward-looking statement contained in this presentation speaks as of the date of this presentation. EADS
undertakes no obligation to publicly revise or update any forward-looking statements in light of new information,
future events or otherwise.
Aircraft Financing Review
Aircraft Financing: What? Who? How?
• Asset based finance
• Export Credit
• Manufacturer’s support
Aircraft financing market players review
and trends
Looking forward: what to expect?
3
Characteristics
of Asset Based Finance
• Secured lending as opposed to unsecured financing
• Lenders take a pledge (“mortgage”) over an asset as security
or as finance lessors retain legal ownership of the aircraft (title
transfer to lessee at term)
• The aircraft is the principal security, guarantees can be added
• Aircraft are particularly suitable assets:
• mobile, fairly standardised, large operator base
• transparent market values (provided by external appraisers)
• highly regulated legal and operational environment
• globally recognised security procedures (Capetown convention)
• Recourse on a quality asset enhances the “rating” of the
transaction and improves terms & conditions available to the
airline
• Important parameters: Loan to Value (LTV), margin, currency
and term
4
$ mio
Aircraft finance and aircraft value
Area of risk in soft market conditions
with 85% Loan To Value (LTV)
Years
100% Financing
Base Market Value
85% Financing
Soft Market Value
Aircraft Financing Review
Aircraft Financing: What? Who? How?
• Asset based finance
• Export Credit
• Manufacturer’s support
Aircraft financing market players review
and trends
Looking forward: what to expect?
6
ECA Financing Structure –
Single Fronting
Coface
Reinsurance
Fronting
Reinsurance
Hermes
100% guarantee
ECGD
3
f the
Any o can front
i es
agenc
Banks
Agent
Loan 85%
Lenders (optional)
Title to the Aircraft
Junior loan 15%
SPC
SPC
Payment
Lease
Purchase Agreement
Assignment and
Airbus consent
Securities
Airline
Airline
Predelivery Payments
( typically 15%)
7
% of Airbus Deliveries Financed
with ECA Support
1982
46 deliveries
81% ECA
90%
80%
70%
1995
60%
124 deliveries
36% ECA
50%
2008
40%
483 deliveries
20% ECA
30%
20%
10%
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
08
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
74
0%
8
ECAs vs. US Exim Deliveries –
Level Playing Field
Amount financed
( US$ M)
6,000
5,000
4,000
4,615
3,843
4,416
4,524
4,739
4,400
4,300
5,200
4,895
4,500
3,929
3,581
3,079
3,288
3,196
2,794
3,000
2,682
2,891
2,655
2,104
2,000
1,000
0
1999
2000
2001
2002
2003
Exim USD
2004
2005
2006
2007
2008
ECA USD
9
Aircraft Financing Review
Aircraft Financing: What? Who? How?
• Asset based finance
• Export Credit
• Manufacturer’s support
Aircraft financing market players review
and trends
Looking forward: what to expect?
10
When is Manufacturer Support
needed?
… good products should support themselves, but:
Competition:
Market driven demand for manufacturer support at time of order:
• Reassure customer that financing will be available at delivery
• Commit to finding financing, especially ECA when available
The “Industrial Credit Risk”:
Secure deliveries in times of financial stress and crisis:
• Manufacturer’s exposure begins once aircraft are being built!
Permanent underlying link to new business …
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How do we manage this Financial Risk ?
By limiting the exposure accumulation
• Strategy: use the market to its full capacity
• Convince aircraft financiers to implement the financing on our behalf
• Anticipate customer requirements and if manufacturer support
implemented:
• Share risk with Engine supplier
• Flexibility in structure to allow sell-down
• Build in economics to attract the market when it returns
By reducing (selling-down) our exposure when possible
• Opportunistic usage of all the financing sources to match our policy
• Encourage the emergence of new sources (e.g. KG market in SIA A380)
• Work with market participants
By provisioning according to an appropriate risk pricing policy
• Use of statistical method to compute provisions
• Follow carefully the airline default probability (credit rating) and aircraft
values
12
Airbus Financing Support Exposure
Active exposure management
Additions and Disposals
to Airbus customer financing gross exposure in $ bn
Additions
Sell Down
Amortization
2.5
1.5
1.5
0.5
-0.5
Net Exposure fully
provisioned
1.2
(0.7)
(0.2)
-1.5
-2.5
1.5
1.4
0.6
0.5
(0.9)
(0.7)
(0.1)
(0.2)
1.0
(0.2)
(0.7)
(0.3)
(1.0)
0.9
(2.2)
(1.1)
Gross
0.3
(0.2)
(0.1)
Exposure
($ 1.5 bn)
(0.2)
Net
Exposure
€ 0.6 bn
€ 1.1 bn
(0.1)
(0.2)
Net change
(2.9)
0.8
(1.3)
(0.2)
(0.3)
0.4
Estimated
Collateral
€ 0.5 bn
(0.2)
-3.5
1998
6.1
1999
4.3
2000
3.9
2001
3.1
2002
3.8
2003
4.8
2004
4.6
2005
3.8
2006
1.8
2007
1.5
2008
1.5
31st Dec. 2008
Gross exposure ($bn)
• Continuing Reduction since 2004 reflects market recovery
• Remains at all-time-low since late 80’s
• Allocated over 74 aircraft
13
Aircraft Financing Review
Aircraft Financing: What? Who? How?
• Asset based finance
• Export Credit
• Manufacturer’s support
Aircraft financing market players review
and trends
Looking forward: what to expect?
14
Financing of Airbus Deliveries
2003-2008 History
Manuf. support
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2003
e)
ECA (Airlin
ECA (Lessor)
Sale & Leaseback
rket (Les
Commercial Ma
sor)
Commercial Market (Airline)
2004
2005
2006
2007
2008
Continuous support from ECA amounts to
15-20% of deliveries
Low Airbus support implemented since 2005
Data to end 2008
15
Aircraft Financing Review
Aircraft Financing: What? Who? How?
• Asset based finance
• Export Credit
• Manufacturer’s support
Aircraft financing market players review
and trends
Looking forward: what to expect?
16
2009 Market Trends
• Banks:
•
•
•
•
•
Most banks still constrained by access to liquidity
Currently around 20 banks active in aircraft financing
Strong appetite for ECA transactions - some banks returning to this market
Liquidity initiatives in progress
Government support bringing additional liquidity (e.g. SFEF in France)
• Operating lessors:
• Opportunistic S&LB appetite continues but with fewer players
• Lessors limited by inadequate access to debt funding
• Potential of new players in China and Japan
• Others:
• Equity and hedge funds still on hold
• Capital markets unfreezing – appetite for AAA paper
• Tax investors / private equity appetite limited
17
2009 Market Trends - ECA Support
• ECA exposure could double compared to 2008:
• Major lessors returning to ECA support
• ECAs confirm not capacity constrained
• Process and pricing methodology remains unchanged
• 2009 outlook:
• 75% of deliveries eligible for ECA financing
• Possibly up to 50% of total deliveries with ECA support
• ECA process now simplified (Fronting)
• Alternate funding/liquidity sources being worked on
18
New Sources of Financing
Several Chinese banks
creating leasing companies
Large private equity
funds
Growing interest in S&LB
opportunities
New aircraft lessors
Islamic funding?
China: debt/leasing
Tax investors
Trading houses
Growing interest in
S&LB opportunities
Japan: tax/equity
Middle-East: equity/leasing
Regional banking
Pension funds
KG market (e.g. SIA A380s)
Central and other public
banks
Other sources
19
2009 Airbus Deliveries Outlook
• Strong mandates in place for first half
• Almost 80% of deliveries are with the market’s single-aisle of choice,
the A320 Family
A330
15%
A340
2%
A380
4%
A320 Family
79%
Data to end 2008
20
2009 Airbus Deliveries by Region
North America
6%
Europe
28%
Middle East
& Africa
7%
Lessors
26%
Latin America
5%
China
13%
Asia* / Pacific
15%
2009 backlog is widely distributed
*Includes Indian sub-Continent
Data end December 2008
21
In a downturn, airlines
use their most efficient assets
25%
20%
Percentage of fleets in short term or long term storage
A320 Family
737 Classic + MD80/90
15%
10%
5%
0%
Dec
2000
Dec
2001
Dec
2002
Dec
2003
Dec
2004
Dec
2005
Dec
2006
Dec
2007
Dec
2008
Jan
2009
Older less efficient aircraft are grounded,
many of which do not return to service
Data end January 2009, Source: CASE database
737 Classic = 737-300/400/500
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Action Plan
• Proactively manage our deliveries
• Anticipate financing needs for weaker airlines
• Identify potential portfolio of airlines requiring
financing support
• Work with existing partners to find suitable solutions
• Develop and promote new/alternative sources of financing
• EADS will remain a lender of last resort
23