Africa: how to facilitate access to financing for aircraft purchases?

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There African development bank organized workshops with aircraft manufacturers Airbus and ATR to explore ways to strengthen theaccess to finance for the african airlines.

These sessions, held on June 14 and 15, will support the Bank’s efforts to develop and adapt financing instruments to the continent’s aviation needs, in order to boost the air transport market in Africa.

The workshops focused on the Bank’s financing instruments, including guarantee products, the Bank’s approach to credit risk assessment and the outlook for the African aviation market. The Bank is studying the feasibility of setting up an aeronautical leasing platform. Operating leases represent more than 45% of operational fleets worldwide.

Representatives of the Bank and aircraft manufacturers also discussed sources of financing, including export credit agencies, multilateral development banks, assured financing in case of non-payment and sovereign support.

Air transport on the continent has been hit hard by the Covid-19 pandemic. Prior to the pandemic, African aviation accounted for around 3% of the global market, despite the continent having 17% of the world’s population.

Due to a difficult operating environment that includes limited access to credit, only a few African airlines are profitable. As a result, air travel remains unaffordable for the average African. High operating costs, coupled with low passenger traffic, are driving fare hikes as carriers attempt to increase profitability. In recent years, it has been observed that the prices for intra-African flights are two to three times higher than in other regions of the world.

Furthermore, despite the efforts made by governments, public institutions and private actors, a large part of air traffic passes through a few airports, in particular those of Cairo, Johannesburg, Casablanca and Addis Ababa. Many other roads are therefore not or poorly served.

However, African economies are expected to rebound and return to growth post-pandemic. The economic recovery is expected to lead to the delivery of 1,230 new single-aisle wide-body aircraft and 230 turboprop aircraft by 2040. According to a recent study by the Economic Commission for Africa (ECA), the implementation of the African Continental Free Trade Area will lead to a 28% increase in intra-African cargo demand by 2030. This projected growth will require an additional 250 aircraft, which will need to be financed.

A key lesson from the workshops is that the Bank needs to further assess potential interventions in aviation markets pending the completion of the feasibility study for a leasing platform by the end of the year 2023.

John Walker Avatar