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Feature: The black box that is Basel III

06 June 2011

Basel III will not shrink the availability of financing, but the new regulations will make it more expensive.

Read more: Basel III Nout Wellink Aoife O'Sullivan Jose Abramovici Francois Valette leverage ratio net stable funding ratio (NSFR) David Goring-Thomas

Airlines will be squeezed tightly when it comes to margins in the next few years. The operating environment is becoming more difficult as several analysts suggest high fuel prices are here to stay.

To add insult to injury, the price increase of export credit under the new Aviation Sector of Understanding will increase in 2012 just in time for the European Union Emissions Trading Scheme to come into effect. Airlines will need to count every penny.

One year later, new lending practices introduced under Basel III regulations will be enforced in 2013. This will not impact airlines directly, but as banks pass on their increased liquidity costs, loan pricing will inevitably increase.

"I think the combination of all these rules together is what's going to put pressure on the market," says Aoife O'Sullivan, partner, Gates & Partners. "The industry is being squeezed from all sides."

Aviation lenders have already...

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