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Shedding risk
01 November 2005
While manufacturer financings are never easy, Bombardier's Raspro 2005 succeeded in making more than a billion dollars of finance. Alexandra Cain examines the deal.
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People either love or hate manufacturer finance. Airlines love it because it gives them certainty that they can finance orders. Aircraft sales people also love it because it helps them sell aircraft to airlines. But finance managers at manufacturers hate it.
Having to provide back-up finance and residual guarantees means that manufacturers have less cash to invest in building aircraft or developing new models. They also have to manage more risk.
This includes the risk of lessees defaulting, which is especially important because airlines that need manufacturer support tend to be weaker credits, and large amounts of asset risk, that is made worse by the lack of diversity in the portfolio. At one point BAE Systems' finance team worked out that the amount of risk in its regional aircraft portfolio, which was just a small part of the defence company's business, could bankrupt the entire company.
While they cannot stop...
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