Iran and Cape Town Treaty; ATF price shock in India

Dino D'Amore
By Dino D'Amore June 1, 2016 20:23

Iran and Cape Town Treaty; ATF price shock in India

BOC Aviation shares gained ground on their opening in Hong Kong today, up by over 2% at one point before falling back. The IPO was very well priced for BOC. Also today Airbus confirmed what we all knew to be the case – it cannot close its Iranian aircraft deals because they cannot get the aircraft financed as the major European and US banks wait to see how the playing field might look after the US, French and German elections. John Leahy, Airbus Chief Operating Officer for customers, called the banks “shy” today in Dublin but there is no substitute for caution on this matter right now.

ATR is putting together a number of banks and lessors to help finance the euro-denominated sale of 40 aircraft to Iran at the moment with deliveries due to take place in Q4 2016 but the amounts involved on the Airbus and Boeing deals are far too great for such an arrangement. As mentioned here before, it might be far easier for Airbus and Boeing to try and strip out a batch of narrowbody aircraft from the orders to get those financed by a group of banks and then try to get the larger aircraft such as A380s financed one at a time. Without ECA backing, the manufacturers are all stumped. But would you finance an aircraft for an Iranian-based airline right now?

If Iranian authorities got into action and made implementation of the Cape Town Treaty their number one priority, it could improve access to finance. The Iranians know full well what they need to do, yet no mention of the Cape Town Treaty in public has been made by authorities as yet, nor any mention of attempted implementation or of a plan to try and push through the same at speed and that is worrying bankers and lessors. The Iranians would do well to make some sort of positive statement on the subject while they have the platform to do so in Dublin this week. The longer the malaise continues, the longer IranAir will have to wait for aircraft as other airlines are snapping-up near-term delivery options, which could cost Airbus a deal.
Meanwhile, it is a return to form in India as jet fuel prices were revised by the public sector oil marketing companies late last night local time with no warning. Indian Oil increased jet fuel prices by 9.22% to Rs 46,729.48 per kilolitre in Delhi with the corresponding revision in prices in other states depending on local state levies. The revised jet fuel prices took effect today. A 9.22% increase in costs is a big pill to swallow and it will tip a great many airlines back towards the red for Q4 2016
As a result InterGlobe Aviation shares closed down 2.23% and Jet Airways stock closed down 1.63%.

This is a blow to airlines in India as it was only just announced that their combined debt was going to be cut to Rs.58,000-60,000 crore in 2015-16 from Rs.70,000 crore in 2014-15 on account of lower fuel prices, according to rating firm ICRA this week. But caution needs to be observed by all. Much of this fall was due to the huge IndiGo IPO in Q4 2015. The reality is that overall the cash reserves of a few Indian airlines have trended downwards steeply over the past 12 months, making it difficult for those airlines to raise equity capital and re-finance debt obligations, in this band one should include SpiceJet and yet their shares increased today. Many see SpiceJet as the prime target for a foreign airline to gain a foothold in India at this time and the SpiceJet plan of market share at all costs plays to this. If it does not find a suitor, SpiceJet will need another cash infusion before too long. Leasing to SpiceJet might yet still be a serious risk even with additional undertakings from SpiceJet owners as a guarantee.

Dino D'Amore
By Dino D'Amore June 1, 2016 20:23