Rarely, when a company or individual goes to pay for a new Boeing or Airbus, does one expect the buyer to pay in cash. However, that is just what has been happening in the recent years. Boeing, the largest seller of widebody airplanes, has forecast that a quarter of a deliveries are to be paid for in cash.
Most of the time, buyers who are paying $320.2 million for a 777-300ER or $212 million for a 787 Dreamliner pay with cash that they have borrowed elsewhere, from a commercial bond issue to support the acquisition. Or the company has sold its new jet to a leasing company and plans to rent for the next decade.
Boeing and Airbus receive the majority of payment for a new plane when a customer takes it. According to Boeing Capital, cash payments peaked at 1/3 of deliveries in 2012. Boeing Capital predicts that bank loans and capital markets, often bond issues, will each account for 24 percent of delivery financing. Boeing’s commercial airplanes unit reported $53 billion in sales last year due to a record output of 648 aircraft. Airbus reports that cash and commercial debt accounted for 57.5 percent of its delivery financing last year. The company does not specify cash alone.
In a conservative market, the rising number of cash payments reflects that the airline industry has dramatically slashed its debt load.
“Cash is fungible,” says Henri Courpron, chief executive officer of International Lease Finance Corp., one of the world’s largest airplane lessors. “There’s no airline in the world that doesn’t have borrowings.” But at times there are also a few that see wisdom in writing fantastically large checks.
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