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Boeing customers face loan crunch

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WASHINGTON (MarketWatch) – Buyers of Boeing Co. commercial jets may have to scramble to finance themselves next year as the eurozone crisis forces banks to cut lending, as cancellations this year approach unprecedented levels since the 2009 credit crunch.

“The European debt crisis is serious and we are concerned about the repercussions on the ability of European banks to continue to support aircraft financing as they have done in recent years,” Boeing said in a statement Tuesday.

A scene from the first delivery of the Boeing Dreamliner in September.

Boeing

European banks provide the bulk of commercial bank loans for new aircraft, and higher costs or stricter lending standards could lead to more aircraft order cancellations.

Boeing BA,
+1.62%
said deliveries through the first half of 2012 already had their financing in place, and that it does not anticipate higher financing costs for its customers “at this stage”.

However, cancellations at Boeing are already on the rise this year, reaching 116 so far, compared to 95 for the whole of 2010. At the height of the credit crunch in 2009, Boeing recorded 121 order cancellations.

Total orders remain strong, however. Boeing has booked 677 aircraft orders this year after adjusting for cancellations, up from 625 in 2010 and just 263 in 2009. Read the article on Southwest Airlines’ order for 150 Boeing 737Maxes.

If there is a silver lining to the financing outlook, it is that as commercial banks pull back from aircraft lending, new sources are expected to step in to fill the void, such as regional banks and capital. -investment, according to Boeing.

“In 2009, there was only a billion dollar gap because so many government guaranteed loans went out to financial markets; China has increased its exposure, [and] the Middle East too, ”said Peter Arment, equity analyst at Sterne, Agee & Leach.

In the long run, aircraft financing generates good returns, which means there will always be someone new to provide the financing buyers are looking for, Arment said.

“The crisis among European banks is something we are paying a lot of attention to, but the global liquidity pool for aircraft financing remains healthy,” Arment said.

Industry-wide, buyers will need to raise about $ 95 billion in financing to pay for aircraft deliveries in 2012, up from $ 77 billion in 2011, according to Boeing. Of that amount next year, about $ 20 billion is expected to come from commercial banks.

If countries like Greece and Italy default, as is widely speculated, or if European banks lose their creditworthiness as the region struggles to finance its debt, that $ 20 billion could quickly evaporate.

The situation could worsen in 2013, when about $ 106 billion in financing will be needed for scheduled deliveries, Boeing said. By then, the tightening of lending conditions could have spread to the export credit agencies, which represented funding estimated at $ 29 billion for 2012.

Boeing has said it will provide additional guidance on financing in January when it releases its financial guidance in 2012.


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