When I look at global airliner sales, I quickly realize that it
isn't necessarily the quality of the aircraft being sold, but rather the
easy financing terms. Why? Well, servicing the debt of the aircraft is
nearly as costly as the cost of the fuel. This concept of "easy terms"
in industrial sales is nothing new, it is in virtually every industry.
In airliner sales it is truly amazing some of the questionable financing
deal made to secure orders. Many of the behind the scenes negotiations
have more to do with trade deals ranging from everything from
agriculture to intellectual property. Okay so, let's talk about banking,
aircraft leases, airliner financing and trade negotiations.
You see, there was an interesting article in Aviation Today on March 28, 2014 titled; "Airbus Group, Bank of China Sign Aircraft Leasing Agreement," which stated;
"Airbus Group has a new agreement with Bank of China to collaborate on aircraft leasing, management, hedging and corporate loans. Under the agreement, Airbus customers will have access to increased financing options in China for aircraft purchases. Airbus aircraft first entered the China market in the 1980s, and the company also set up an A320 family assembly line in Tianjin in 2008. 'As a company that already has a significant industrial and market presence in China, this agreement with Bank of China is a logical step forward,' said Airbus Group CFO Harald Wilhelm."
Okay, sounds good in the news, but is it a logical step in this climate, right now, today in China? On first glance, this is a major coup for Airbus or it appears so, but what could go wrong? Everything, have you seen the problems with China and its commercial banking sector, just this week we saw a run on one very large commercial bank, corruption and indictments ensued. Logging airliner sales when Airbus already has a huge backlog is one thing entirely, but partnering with questionables just to show more sales is a very financially dangerous game to play as the competition between Airbus and Boeing heats up in 2014.
If China's financial sector is in trouble with loads of defaulting loans, and if it is due to their way of doing business and lack of regulation and oversight, then why would Airbus or any other corporation wish to partner with them? Simple, it is politically expedient to sell more aircraft right now in the short-term, but with that said consider the long-term challenges and think about the existing backlog which already exists? Selling or rather taking more orders with the promise to finance those aircraft later perhaps in 7-years when they are actually built and delivered doesn't make sense to me.
You see, there was an interesting article in Aviation Today on March 28, 2014 titled; "Airbus Group, Bank of China Sign Aircraft Leasing Agreement," which stated;
"Airbus Group has a new agreement with Bank of China to collaborate on aircraft leasing, management, hedging and corporate loans. Under the agreement, Airbus customers will have access to increased financing options in China for aircraft purchases. Airbus aircraft first entered the China market in the 1980s, and the company also set up an A320 family assembly line in Tianjin in 2008. 'As a company that already has a significant industrial and market presence in China, this agreement with Bank of China is a logical step forward,' said Airbus Group CFO Harald Wilhelm."
Okay, sounds good in the news, but is it a logical step in this climate, right now, today in China? On first glance, this is a major coup for Airbus or it appears so, but what could go wrong? Everything, have you seen the problems with China and its commercial banking sector, just this week we saw a run on one very large commercial bank, corruption and indictments ensued. Logging airliner sales when Airbus already has a huge backlog is one thing entirely, but partnering with questionables just to show more sales is a very financially dangerous game to play as the competition between Airbus and Boeing heats up in 2014.
If China's financial sector is in trouble with loads of defaulting loans, and if it is due to their way of doing business and lack of regulation and oversight, then why would Airbus or any other corporation wish to partner with them? Simple, it is politically expedient to sell more aircraft right now in the short-term, but with that said consider the long-term challenges and think about the existing backlog which already exists? Selling or rather taking more orders with the promise to finance those aircraft later perhaps in 7-years when they are actually built and delivered doesn't make sense to me.
