July 23, 2013, 8:00 p.m. ET
By NOÉMIE BISSERBE
The Wall Street Journal
PARIS—French banks are making a comeback in the aircraft-finance market, thanks partly to a technique that gained notoriety during the financial crisis: securitization.
Large French lenders have long been the heavyweights in financing the purchase of commercial aircraft. But in recent years, they had been forced to pull back, as regulatory rules in Europe crimped their ability to hold loans on their books.
In addition, their access to dollars, the currency of choice in the global aircraft-financing market, was curtailed after U.S. investors, spooked by the sovereign-debt crisis, cut back on lending to European banks.
But the French have found a way back in: by changing their financing model. Previously, banks made long-term loans with short-term funds raised on financial markets. However, new regulation in Europe is forcing banks to match long-term loans with long-term resources and set aside more capital against the loans they issue.
Now, securitization has come to the rescue. France's top four listed banks by assets—BNP Paribas SA, Crédit Agricole SA, Société Générale SA and Natixis —are selling loans to investors and often securitizing them. The process is akin to the way Wall Street firms handled mortgage loans before the crisis, although its proponents say that better risk assessment will allow banks to avoid the same pitfalls.
"French banks' retreat from the aircraft-financing market is vastly exaggerated," said Kostya Zolotusky, head of capital-markets development at Boeing Capital, Boeing Co.'s aircraft-financing and leasing unit. "They have remained very active by efficiently originating and distributing loans."
Instead of retaining the loans they issue on their books, which has become very costly under the new rules, banks are selling them to insurers, pension funds or other lenders, booking commissions in the process. French banks also are helping airlines and leasing companies issue bonds to fund aircraft purchases, a growing part of the market.
"French banks need to find alternate sources of funding [for airlines], and U.S. capital markets are a good option," says Christian McCormick, Natixis's global head of aircraft finance.
The push to retain a slice of the market shows the pressure French and European banks face to find new sources of revenue as the recession bites across most of Europe and capital and liquidity rules hamper their traditional sources of lending.
The aircraft-finance market has strong appeal: If the airline doesn't repay the loan, banks can seize the aircraft. And it is rising.
Boeing estimates airlines world-wide will need 34,000 new jets valued at $4.5 trillion through 2031, including replacement aircraft.
Lenders in the U.S. already sell off the bulk of the loans they issue on their books, and bond markets are much larger than they are in Europe.
BNP Paribas said it arranged loans valued at $3 billion in 2012 to fund aircraft for airlines including Deutsche Lufthansa, Turkish Airlines, Ryanair Holdings PLC, Air France-KLM, Lion Air and Air China Ltd. %
"We are adopting a model more similar to that of American banks, with more distribution," says Eric Eugène, managing director and global head of the transportation sector at BNP Paribas.
In January, BNP pooled loans for 26 aircraft serviced by GE Capital Aviation Services, General Electric Co.'s aircraft-leasing and financing arm, and repackaged them into asset-backed securities valued at $650 million. In June, Natixis completed a $263 million securitization deal for Synergy Aerospace Avianca, which owns the Colombian airline Avianca, to help it fund the purchase of eight Airbus A330 aircraft. Natixis said it held on to the senior tranche but sold the junior one to other investors.
The French have seen their clout in this market diminish. Crimped by the new banking rules, the French banks started selling parts of their existing aircraft-loan portfolios to investors or other banks in 2011.
The pullback was swift. French banks, which alone accounted for 32% of commercial-bank aircraft credit in 2011 globally, according to Boeing, saw that their share plummet to 16% by 2013.
"Banks had to trim down their portfolio," said Yann Sonnallier, head of origination to distribution projects at Société Générale.
Japanese banks, starved of promising lending opportunities at home, rushed in, increasing their share of the aircraft-loan market to 21% in 2013 from just 13% two years ago.
But bankers and aircraft manufacturers say the French have a better grip on the market than the data suggest.
Boeing notes that bank lending accounts for only 29% of the total aircraft-financing market. Credit-export agencies and capital markets make up 23% and 14% of deliveries, respectively, while the rest is covered by airlines' cash.
French banks' 16% share doesn't include the bond issues managed by French banks and securitized loans, says Boeing's Mr. Zolotusky.
"I am actually surprised by how many French banks are still in the space," says Jessica Gray, head of the commercial operating asset finance group at Wells Fargo & Co.
—Laura Stevens in Frankfurt and Atsuko Fukase in Tokyo contributed to this article.
Source: http://online.wsj.com
