Bangkok--15 Aug--Centre for Asia Pacific Aviation Gone are the days of cheap finance — or so it seems, at least over the medium term. The US sub-prime mortgage problems have dented investors’ appetites for providing debt financing. So much so that central banks have been pumping billions of dollars into global financial systems in the past week to avert a credit crunch. This is flowing into credit spreads for many industries, including the highly leveraged and volitile airline sector. Even now — at the best of times - the airline industry is paying more for its debt, as investors demand a higher yield premium over safer (ie government) borrowings. The situation could be exacerbated as the massive influx of recent aircraft orders start to deliver. Asia Pacific airlines alone have some 650 aircraft scheduled for delivery over the next 18 months — more than one per day — and all will need to be funded either through debt, equity (a less attractive option if market volatility continues and private equity exits the scene) or from spare cash sitting in airline balance sheets. IATA recently stated however that airline balance sheets “remain fragile” and the industry remains vulnerable to the kind of shocks that hit demand and costs over the past six years. Returns on capital are considerably higher than in the depths of 2001, but, according to the industry body, “remain below the levels achieved in the late-1990s and are still several percentage points away from matching the average 7-8% cost of capital." The industry “sweet spot” could quickly be replaced with something a lot less palatable if the global debt woes worsen.Note to editors:About Centre for Asia Pacific Aviation The Centre for Asia Pacific Aviation (CAPA) was founded in 1990 and has since built an international reputation as the leading specialist aviation consultancy in the Asia Pacific, the Indian Subcontinent and Middle East regions. CAPA Consulting’s strategic advisory services are supported by the extensive information and data services provided by the Centre’s Market Research Unit to aviation industry leaders every day. The Centre also holds regular Aviation Leadership Summits, which provide unique opportunities for the exchange of ideas and experiences. Head Office, Sydney: Derek Sadubin, Chief Operating Officer Aurora Place, Level 36, 88 Phillip St Sydney PO Box N777, Grosvenor Place Sydney, NSW Australia 2000 Email: [email protected] Southeast Asia Regional Office: Richard Pinkham, Regional Director, Southeast Asia Email: [email protected] Indian Subcontinent and Middle East Office: Kapil Kaul, CEO Indian Subcontinent & Middle East Email: [email protected] UK/Europe Office: David Bentley, UK Associate Email: [email protected] North America Regional Office: Martti Raito, Regional Director, North America Email: [email protected] North Asia Representatives: Korea: Kyung-sup Lee. Email: [email protected] Japan: Reiko Sonoyama. Email: [email protected] More information is available on the Centre’s website: www.centreforaviation.com