Aerospace – Civil Aviation
Brazil has participated actively in the discussions of the Aeronautical Sector Understanding at the Organization for Economic Cooperation and Development – OECD. These meetings were intended to restore a level playing field among nations, which host the main actors in the aeronautical industry, particularly regarding the conditions of financing mechanisms and credit guarantees.
Although Brazil is not an OECD member, it took part in the revisory process as a full member and made concrete proposals in all rounds. These negotiations culminated in the Aircraft Sector Understanding 2007 (ASU) applied to export credits for civil aircraft with official support endorsed by all participants, which included among other things a specific model of pricing to financing operations / security / export credit insurance for aircraft.
The risk premiums charged by Export Credit Agencies for aircrafts category 2 and 3 (cf ASU 2007) were developed from the methodology proposed based on the Basel II approach. Nonetheless, after the first years of application of the first version of ASU 2007, the participants decided to review this Agreement in the new ASU (2011), which contemplates a new risk premiums, subject to periodic review. Also adopted a single risk premium curve for all ASU Participants, reconciling the categories 1 (large aircraft) and 2/3 (regional jets, turboprops and helicopters) of ASU 2007. It also sought greater convergence between Export Credit Agencies’ official support terms and conditions and markets benchmarks, especially during times of increased risk aversion.
The ASU rules shall be applied to new and used aircraft, aeronautical turbines, turbines for replacement, replacement parts, replacement services and the maintenance of aircraft and engines, conversion kits and aircraft turbines. However, the same agreement does not apply to military aircraft or services for such equipment and also flight simulators.
The Risk classification follows the risk assessment methodology that is based on the assessment of four risk factors: financial, operational, market and cadastral that are consolidates from the weight of risks subfactors. This model takes into account only the credit risk of the debtor, i.e., it does not assess any type of collateral involved in the transaction, such as the aircraft mortgage, since the premise is that the rating shall be senior unsecured. During the model’s revalidation, a model variant was introduced to exclusively assess risk of charter and non-regular flight companies. Recently, due to increased demand for support in the aircraft leasing industry, has been developed a model to assess risks exclusively to this segment.
The role of ABGF Aerospace Department (GTA) is not limited to transaction risk assessment and pricing. With the support of legal counsel, it also helps exporters, lenders and borrowers to structure transactions in order to reduce FGE’s risk exposure.