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Wed, Dec 05, 2012

Boeing Forecasts Sufficient Financing For Rising Global Aircraft Deliveries

Top Executive Ranks Shuffled By Commercial Airplanes Chief Ray Conner

Boeing projects the world's airlines should see reasonable liquidity and pricing for new-aircraft delivery financing in 2013 even as jet builders ramp up production to meet demand, the manufacturer announced here today in issuing its fifth annual finance market forecast.

"We expect that despite economic and political challenges, global air travel will again demonstrate its remarkable resilience in 2013. The industry's global growth and airlines' fleet replacements, accelerated by higher fuel prices, should keep demand stable and attract sufficient financing," said Kostya Zolotusky, managing director of capital markets development and leasing at Boeing Capital Corp., the plane maker's financing and leasing unit which develops the forecast.

The encouraging report comes amid lingering economic uncertainties and as higher costs for eligible airline borrowing using government export credit financing go into effect in 2013.

The manufacturer forecasts total industry jetliner deliveries at $104 billion in 2013, with 95 percent of that expected to be split between Boeing and Airbus.

Boeing foresees 2013 financing conditions on par with 2012, and predicts the largest funding source – commercial banks – should strengthen their investment. Among other major players, capital markets are expected to grow as a funding source for U.S. airlines and expand to also serve non-U.S. airlines and leasing companies. Meanwhile, leasing firms are expected to grow in their delivery share and gain access to more diverse sources of equity and leverage.

This year began amid concerns that Europe's commercial banks, a primary aircraft financing source, would pull out of the market due to the continent's economic crisis. However, Zolotusky said those fears did not materialize, and in 2013 the company expects that Europe's banks will remain active because the aircraft space is one of the most attractive and high-performing sectors for bank investments.

Boeing said regional commercial banks – in places like China, Japan, Australia, the Middle East and North America – stepped back into or entered aircraft financing in 2012 and expect to remain in 2013.

In announcing the need for increased financing for rising industry deliveries, the company said market data clearly supports the higher production pace.

"Aircraft utilization is at record highs as are global load factors. Growth in people traveling is happening faster now that new capacity is being introduced. These are fundamental indicators that show that the aviation market is healthy and perhaps even a little underserved," said Boeing's Zolotusky.

The company expects the higher costs and stricter terms for export credit borrowing next year to drive down reliance on government-backed loan guarantees, as their use gradually returns to lower historic rates.

Meanwhile, Commercial Airplanes Chief Ray Connor has shuffled the top of the executive deck, promoting Scott Francher from the 777X program to be the head of all five airplane development programs. Those will include the 737MAX, 767 Tanker (KC-46A), and 787-9 already in development to be followed soon by the 787-10X and the 777X, which is somewhat further down the road.

Pat Shanahan has had his role extended beyond the Puget Sound region to oversight of all jet assembly lines, including South Carolina, as well as the far-flung supply chains which keep them operating.

The Seattle Times reports that Connor said in a note to employees distributed Monday that the moves will balance the company's production and development priorities. He said that over the next 18 months, the Commercial Airplane Division will increase production rates by 25 percent overall, while at the same time managing the five development programs.

And the planemaker announced another milestone at the beginning of the week. In a news release, the company said it had reached a record for year-to-date 737 deliveries with today's delivery of the 377th Next-Generation 737. The delivery of the airplane, a 737-900ER (Extended Range) with Boeing Sky Interior for United Airlines, topped the previous record of 376 deliveries set in 2010.
 
In October, the 737 also broke its own record for net orders in a single year when it topped the 2007 record of 846 orders. Net year-to-date orders for the Next-Generation 737 and 737 MAX total 1,031 airplanes. This also is the first time in the single-aisle jetliner's history that it has logged more than 1,000 orders in a single year.

FMI: www.boeingcapital.com/cafmo, www.boeing.com

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