Skowronski acknowledges that the task of scaling back its financing portfolio will be tough. "We are looking at what we can do to mitigate the risk," he says. "There are several things we can pursue—securitization, monetizing by selling off physical assets, various things in the insurance market place. But the markets have to be there, and for several of these right now, the markets aren't there."

Also, BCC's portfolio has momentum that could see it grow more before it can be scaled down. For example, exposure to the top five airlines in the portfolio grew by $1 billion in the first nine months of 2003. And Boeing accounts show that there is another $4 billion in potential financing commitments that BCC might have to honour up to end-2005.

Meanwhile, Airbus is taking steps to limit its financing exposure. Last spring, it created a new Dublin-based company, Avion Capital, with partners CIT, Credit Agricole Indosuez, and Kreditanstalt für Wiederaufbau, a vehicle that will allow it to "finance an inventory of financial assets. It is like a funnel out to the market," says Debains. "It is going to be just one additional tool. We have to continue to invent new ways to finance aircraft."

But the main control mechanism for Airbus is that it has restricted itself to financing a maximum of 5 percent of sales in the current depressed market, expecting to offload when the market gets better.

At Boeing, things are tougher. As Tassos Philippakos, aerospace and defence analyst at Moody's, says, "You have to make a distinction between the past, present, and future at Boeing. In the past, it was looking to grow its BCC portfolio by at least 30 percent a year. But the thinking at Boeing has changed. I believe we will see, in the future, a much more conservative approach. But for a couple of years it may be difficult for them to slow down or to decline the financing significantly because of the commitments they have made in prior years."

There has been some speculation that Airbus exposure is understated, that they have hidden risk in things like "residual value guarantees" to purchasers. But Tusa at Goldman Sachs says that Airbus has "consistently surprised to the downside in terms of their exposure, and that's a good thing."

As Debains points out, the risk factors that suddenly hit the industry at the end of 2001 are still with us. "After 9/11 there was a reality check. People realised it was a good idea not to double your credit risk in the industry, because when things go wrong it all happens at the same time."

Turbulence

Boeing Capital Corporation's top five exposures:

• AirTran. Exposure at the end of September 2003 was $1.4 billion (€1.2 billion), nearly 12 percent of the portfolio. The low-cost airline was reconstituted out of ValuJet, which was grounded in 1996 after a notorious crash in the Florida swamps. With revenue in 2002 of $733 million and assets of $430 million, AirTran effectively runs a fleet of aircraft on behalf of BCC.
  
  
• The exposure to UAL, parent of United Airlines, was $1.2 billion. UAL, which filed for bankruptcy protection in 2002, has been negotiating new financing terms with Boeing and other creditors.
  
  
• AMR, parent of American Airlines, which had lost more than $6 billion in the previous three years, accounted for $910 million of the portfolio.
  
  

• ATA, another budget airline, accounted for $718 million. It reported a small profit this year, but still rescheduled lease payments in September with BCC and other aircraft lessors.
  
  

• Hawaiian Airlines, which accounted for $536 million, also was in bankruptcy protection.
  
  

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