Dublin: Ms. Rose Lereece, Director of Customer Finance at Boeing Commercial Airplanes, emphasized the importance of security structures in securing aircraft leases during her presentation at the Airline Economics Growth Frontiers Global event in Dublin, Ireland.
According to News Agency of Nigeria, Lereece highlighted the role of the Stand-by Letter of Credit (SBLC) as a critical security measure provided by commercial banks and supported by a confirming bank and an insurer. The SBLC functions as a short-term, immediate, and irrevocable guarantee, allowing lenders or lessors to claim amounts equivalent to six to 36 months of payments in U.S. Dollars. These payments are intended to cover both rentals and maintenance reserves.
Lereece outlined the features of SBLC security, which include immediate fund availability, irrevocable funds, and U.S. Dollar settlements. She also noted the additional security provided by confirming banks and third-party insurance. More entities involved imply more security and fees,
giving the lessor or lender the flexibility to either continue operations or repossess the aircraft if necessary.
Lereece added that airlines might need to collateralize a portion of the agreed SBLC value with commercial banks. Airlines pay a single rate to commercial banks that encompasses all fees, including insurance, while commercial banks ensure payment to lessors in case of any issues. The commercial banks receive SBLC insurance support from confirming banks, which, in turn, obtain support from insurance providers. Insurers offer insurance for either the confirming bank or the commercial bank.
Contributing to the discussion, Mr. Moor Ibekwe, Boeing Sales Director for the Africa Region Commercial Airplanes, explained that the SBLC’s value, calculated in terms of due payments, could range from six to 36 months for both rental and maintenance reserves. He described the ‘playout term’ as a one-off or monthly occurrence based on the severity of the underlying issue. He further noted that continued utilizat
ion or restoration would depend on the lessor or lender, requiring support from confirming banks and insurance for the lease or loan transaction. The tenor, or the duration for which the SBLC must be available to the lessor or lender, is crucial in the first five years of a 12-year lease.