Dubai: Middle Eastern institutions could be the catalyst for future aviation financing as European and US lenders continue to be gripped by economic constraints.

Five years ago Boeing Capital Corporation, the aircraft financing arm of Boeing, identified financial institutions in the Middle East as an airport growth market for aircraft financing. Since then Boeing Capital has been playing the “long-game” as Kostya Zolotusky, Managing Director of capital markets and leasing at Boeing Capital Corporation, puts it.

Middle Eastern institutions were contributing a few hundred million dollars to aviation financing five years ago. Today they are delivering close to four to five billion a year.

“Those are very meaningful changes in terms of scale in how much liquidity they’re providing to fund new [aircraft] deliveries,” Zolotusky told Gulf News in an exclusive interview.

Middle Eastern intuitions are set to become big players in the global lending market. The scope and scale of the deals over the last five years have diversified as lenders become more confident in combining credit and asset.

“They have much larger portfolios and they’re starting to think about how do I syndicate some of the local originated debt,” Zolotusky said.

Capital markets growth

There has been a market shift since the 2008/09 global financial crisis. The subsequent European sovereign debt crisis affecting most of the European banks has had a contributing affect on how the market shifts with a drop in availability of commercial bank debt for second tier airlines. Although Zolotusky points out there are predominantly first tier airlines in the region.

“We have more expensive export credit, more leasing, but we also have more capital markets growth so it is shifting markets and changing markets rather than [not having enough],” Zolotusky said.

The strength of Middle Eastern airlines has had a natural impact of the growth of lenders in the regional market. In the past, Gulf aviation giants have been criticised for their treasure chest of oil wealth. But Zolotusky said the approach to financing by airlines like Emirates and Etihad has strengthened their position.

“Etihad and Emirates [are] unique relative to all the airlines in the world in that they’re consistently focused in diversifying their funding and sometimes are willing to pay more for financing just to be able to access different markets,” he said.

The airlines will have to maintain “healthy borrowing” to support growth.

“The big issue is you have so much growth that if you start to provide a lot of equity on the airplanes you will never be able to sustain that. If you at Emirates and Etihad’s order books there is no way you can raise that much equity without leverage,” Zolotusky said.

Looking ahead and Boeing Capital believe there is still significant room for the Middle Eastern institutions to step forward and increase their activities in aviation financing.

“Airplanes represent a very small portion of their business and the upside is tremendous,” Zolotusky said.