The Fanblade

Boeing Capital’s cerebral md Kostya Zolotusky has been addressing the aircraft finance community in New York, London, Hong Kong and Dubai, trying to persuade them that it’s not all gloom and doom. In London’s Canary Wharf (Four Seasons Hotel) last week he met reporters for a round-table discussion while the bankers enjoyed a buffet lunch, and outlined Boeing’s take on the challenges ahead. Boeing believes that “the volatility of oil will be staggering” going forward, and it sees a long term price range of $60-90 a barrel, sometimes spiking outside that. That is providing a solid incentive to develop alternative fuels – starting with ‘drop-in’ Camelina-derived fuel, moving later to Jatropha and then, when the technology matures in a few dacades time, algae-based fuels. This will smooth out volatility, reduce net Carbon and reduce US reliance on imported oil. With vast areas of the US lying fallow every 3-4 years, Boeing sees this as a great opportunity to scale up production of Camelina grass. “We’re talking to airlines and also to the ports, as when you do Jet A the first 50-60 percent is biodiesel,” says Zolutusky. While the environment is top of the agenda now, however, Boeing’s core concern is its orderbook and to that end it is saying that the current economic climate is “manageable.” Zolutusky sees banks in China taking a greater role in a more global aircraft finance market, and says that Boeing and US Exim Bank have created a new structured finance product to help airlines acquire new aircraft. He points to the current popularity of and demand for US Treasury financial products as the risk/return now looks very attractive – so there is a “long line of banks waiting to do US Exim deals.” On the London audience he said they were “more dour and pessimistic than New York, which surprised me” but on reflection he saw the reason – the US market has been one step removed, often taking an underwriting role, whereas the London financiers were directly involved. “This group has been the market makers for 15 years… they can see what they are losing… the liquid markets weren’t great as they offered thin margins” – and now, the margins are potentially great but the parent companies won’t back the deals. Zolutusky also said he believed the 777 and 787 were a combination that was “working phenomenally well”, referring to Airbus’s A340 as the “canary in the coal mine.” “All A340s will have to leave the world’s market before a single 777 is grounded,” he added – because the A340 is four-engined, and would not be an efficient freighter either. And of the A350, he said that the best Airbus could hope for was that the Aircraft would be almost as good as the 787 and that Boeing had been confident in going first in that market that there was no breakthrough technology that would allow Airbus to “leapfrog” the 787. He believes that ultimately the 787 will scale up very well as a possible 777 replacement and that this could “overwhelm the A350.” [Airbus is welcome to reply to all this - Ed.]