Customer Financing. Nigel Taylor SVP Customer, Project and Structured Finance. Global Investor Forum 2009, Broughton, 1 st & 2 nd April 2009

Transcription

1 Customer Financing Nigel Taylor SVP Customer, Project and Structured Finance Global Investor Forum 2009, Broughton, 1 st & 2 nd April

2 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 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.

3 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

4 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

5 Aircraft finance and aircraft value $ mio Area of risk in soft market conditions with 85% Loan To Value (LTV) Years 100% Financing Base Market Value 85% Financing Soft Market Value

7 ECA Financing Structure Single Fronting Coface Reinsurance Fronting Hermes 100% guarantee Banks Reinsurance ECGD Any of the 3 agencies can front Title to the Aircraft Payment Predelivery Payments ( typically 15%) Agent Loan 85% SPC Lease Airline Purchase Agreement Assignment and Airbus consent Lenders (optional) Junior loan 15% Securities 7

8 % of Airbus Deliveries Financed with ECA Support 90% deliveries 81% ECA 80% 70% 60% 50% 40% 30% 20% 10% 0% deliveries 36% ECA deliveries 20% ECA

9 ECAs vs. US Exim Deliveries Level Playing Field Amount financed ( US$ M) 6,000 5,000 4,000 3,000 4,615 3,843 3,929 3,079 3,288 2,794 3,581 4,416 4,524 2,891 2,682 4,739 4,300 4,400 2,655 5,200 4,895 4,500 3,196 2,000 2,104 1, Exim USD ECA USD 9

11 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 11

12 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

13 Airbus Financing Support Exposure Active exposure management (0.7) (0.2) Additions and Disposals to Airbus customer financing gross exposure in $ bn Additions Sell Down Amortization (2.9) (0.2) 0.6 (0.9) (0.1) 0.5 (0.7) (0.2) 1.5 (0.7) (0.2) 1.5 (0.2) (0.3) (1.3) (0.2) (1.0) (2.2) (1.1) (0.1) Gross exposure ($bn) Net change Continuing Reduction since 2004 reflects market recovery Remains at all-time-low since late 80 s Allocated over 74 aircraft (0.3) (0.2) (0.2) (0.1) Net Exposure fully provisioned Gross Exposure 1.1 bn ($ 1.5 bn) Net Exposure 0.6 bn Estimated Collateral 0.5 bn 31st Dec

15 Financing of Airbus Deliveries History Manuf. support ECA (Lessor) 100% 90% 80% Sale & Leaseback 70% 60% 50% 40% 30% 20% Commercial Market (Airline) 10% 0% ECA (Airline) Commercial Market (Lessor) Continuous support from ECA amounts to 15-20% of deliveries Low Airbus support implemented since 2005 Data to end

17 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

18 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

19 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 Middle-East: equity/leasing Tax investors Trading houses Growing interest in S&LB opportunities Japan: tax/equity Regional banking Pension funds KG market (e.g. SIA A380s) Central and other public banks Other sources 19

20 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

21 2009 Airbus Deliveries by Region Lessors 26% North America 6% Latin America 5% Europe 28% Middle East & Africa 7% China 13% Asia* / Pacific 15% 2009 backlog is widely distributed *Includes Indian sub-continent Data end December

22 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 = /400/500 22

23 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