Aviation International News senior correspondent Ian Goold has been involved in aerospace since 1964 and in aviation media for more than 40 years. He enjoyed a 20-year career at Flight International magazine, where he was latterly air-transport editor before turning freelance in 1993. A winner of the European Regions Airline Association Hank McGonagle award for excellence in aerospace journalism and a Royal Aeronautical Society Aerospace Journalist of the Year global&nbsp;award, he has edited or contributed to aerospace and aviation magazines, special publications, and websites in Africa, Asia/Pacific, Europe, the Middle East, and North and South America. Ian entered aerospace as an apprentice at the British Aircraft Corporation at Brooklands (Weybridge), where he worked on production and final assembly lines of the Vickers Super VC10, and BAC One-Eleven , and manufacture of Concorde major sub-assemblies. He subsequently graduated from the BAC Design Training School to work in the airframe structures drawing office (including design of international future projects, such as the Panavia Tornado multi-role combat aircraft) before joining Flight International in 1973. Apart from years of reading aircraft magazines and books, his first direct contact with aviation media had come during the early 1970s when he was involved at Brooklands with the Weybridge Man-powered Aircraft Group, which designed and built the tenth aircraft to fly under purely human power. As an aviation journalist, he has worked at more than&nbsp; 50 of the major biennial&nbsp;global and regional international aerospace industry shows at Le Bourget, Farnborough, Singapore, and Dubai (having missed attending only one "Farnborough" since 1960), plus innumerable NBAA, HAI, (U.S.) AOPA, and EBACE Conventions and ERA Assemblies. His favourite aircraft is the Hawker Hunter, of which – as a schoolboy – he heard hundreds make their first flights from Dunsfold, where also on September 24, 2013, he saw the penultimate landing of the VC10 (happily involving an example of which he had witnessed the maiden takeoff in 1970) a day before the last example made the design's final flight (unless, of course....).

Senior correspondent

Ian Goold

Business aviation financiers exhibiting here at EBACE’08 have arrived in Geneva largely uncertain about the full implications of the ongoing squeeze on the global credit market and the availability of funds to pay for aircraft purchases. Last month, EBACE Convention News approached six banks listed as exhibitors, but only two–Citi Private Bank (Booth No. 1441) and Bank of America (Booth No. 941)–would respond to questions about whether the fallout from the massive bad debts from the U.S. sub-prime mortgage crisis is inhibiting previously buoyant demand for business aircraft.
“The current economic situation has certainly not improved the financing conditions for buyers,” noted Toennies von Limburg, international sales director in Bank of America Leasing’s corporate aircraft finance department. “The full impact remains to be seen,” according to Mary Schwartz, global head of aircraft finance and managing director at Citi Private Bank wealth management service. 
“I believe that spreads will increase on financing, as we see happening,” continued Schwartz, meaning that the availability of funds will tighten. “Based on what we know today, continued volatility in credit markets has significantly impacted the cost of capital across our industry.” However, she expects the business to remain profitable, on the basis that, “the market will adjust pricing to reflect wider market conditions.” 
Bank of America (BoA) still finances corporate aircraft in the same way as in previous years, although the industry will be less aggressive in seeking new customers, predicted von Limburg. “There appear to be quite a few banks that are focusing more strongly on relationship clients and which will not try to grow their books at the past rate.” Accordingly, new candidates for corporate aircraft finance probably will “find it more difficult to get attractive rates, as will existing clients with weaker credit.”
Schwartz agreed that banks are not lending so easily. She said such lending had become less competitive over the past year and warned of a possible early downturn in new orders. “Between the lending crisis and the lengthy backlogs, we may see that happen very soon,” she said. Since aircraft markets lag behind the economy, the impact of the current market situation has not yet been realized. 
Although there are now more used aircraft for sale, Schwartz said she had “not heard of people canceling orders for new aircraft.” Nevertheless, banks have become more selective in their lending practices, she acknowledged. 
This more conservative approach contrasts with some recent lending patterns that need to be corrected, according to the Citi Private Bank executive: “There was [an aircraft] financing frenzy last year. Some firms were kind of giving money away at rates that were too low and using structures that may not have made sense,” Schwartz maintained. Now, she sees a return to more normal lending practices. Also, acquisition prices had been extremely high “particularly for an early [delivery] position on the bigger aircraft. The current environment may correct that as well.”
The trend in corporate aircraft finance over the past five years has reflected a “bigger is better” mentality in terms of aircraft selection, which has driven up the value of loan deals, she said. “Big, long-range jets are the hottest sellers, with buyers waiting three to five years for deliveries.”
BoA’s von Limburg noted two major trends: “First, an increase in prices, especially [for used aircraft], due to strong demand and long lead times for new deliveries. Second, and probably more important, [market] growth outside the U.S. While the U.S. is still home to the largest fleet of corporate jets, delivery of new aircraft elsewhere increased from 27 percent in 2003 to more than 50 percent in 2007.”
Properly maintained and managed corporate aircraft generally enjoy good residual values, but perceptions of future value vary significantly between banks, according to von Limburg. Acknowledging currently high perceived values, Schwartz said the trend creates issues for lenders and lessors, which might lend more than what she termed the “actual” value. 
“Most banks will control that risk by amortizing the loan [more quickly] so [that] the residual is at a reasonable level at termination. However, most aircraft [used by private clients] maintain value very well, particularly since they tend to be used relatively infrequently, which does help to keep the market strong,” she explained. “The market has historically been cyclical, but whenever there has been a dip, it seems to come back stronger than before.”
So will high values inhibit potential lenders if they imply that the only way to go is down? Last year, the market’s peak did not inhibit lenders, noted Schwartz, while von Limburg believes some lenders and lessors, “especially new players,” may see the need to adjust their valuations models.
Schwartz agreed, but emphasized historic market cyclic trends: “In time, values will stabilize and return [to normalcy]. In the late 1990s and 2000, they were very strong. Then 9/11 happened, the technology bubble burst and the economy in general was terrible and values dropped, some as much as 30 percent.” 
However, she noted that subsequent recovery might be short-lived: “[Since] 2004 values have increased to new heights. We have seen many pre-owned aircraft, particularly the larger ones, selling for more than 100 percent of their original cost. If someone were to sell their [delivery] position on certain aircraft, they could conceivably make $10 million to $15 million on the sale. That might change now,” she concluded.
Von Limburg confirmed an earlier trend toward 100 percent financing. “While this was supported by continuously rising values, it is very likely that a softening market will trigger lower loan-to-value ratios,” he said.
Market cyclicality will not change, maintained Schwartz. “If history tells us anything, ups and downs in the market will continue. The major difference now is that [in the widened world market] I believe the ‘lows’ will not be as low [as previously]. Most industry analysts agree and feel that the ‘globality’ of the market will help to maintain its strength.”
Finally, von Limburg noted the importance of a potential aircraft finance customer’s region of operation or country of aircraft registration, saying that some jurisdictions are not lender-friendly. “We examine each to make sure we have a secure position and may require that the aircraft be registered in a friendly jurisdiction,” he said. “Different financing institutions have different target markets, but typically all will require a registration that offers a proper security interest in the aircraft.”
The other aircraft finance companies here at EBACE are Barclays (Booth No. 808), Credit Suisse (Booth No. 284), Fortis Lease Switzerland (Booth No. 1175) and SG Equipment Finance (Booth No. 975). Bank of Scotland had also been booked to exhibit but pulled out several weeks ago.&nbsp;&nbsp; &nbsp;

Financiers uncertain amid credit upheaval

Business aviation financiers exhibiting here at EBACE’08 have arrived in Geneva largely uncertain about the full implications of the ongoing squeeze on the

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