International export credit rules have been a principal feature of the air finance landscape for the last thirty years.
AWG has engaged with the OECD as a principal interlocutor since 2005 and remains active in work relating to export credit regulation.
In 2007, international export credit rules were revised through work on a new Aircraft Sector Understanding (2007 ASU) negotiated at the OECD, which entered into force effective 1 July 2007.
Participant countries to the 2007 ASU agreed to review that agreement during the course of 2010. The result of this review was a significantly revised ASU (2011 ASU). The 2011 ASU entered into force on 1 February 2011.
AWG believes that export credit rules:
- Should ensure a level playing field for manufacturers and borrowers
- Should not have the effect of displacing or adversely affecting commercial markets
- Should ensure that reasonable levels of export credit capacity remain available, and that higher volumes are available during times of market disruption or when commercial financing is otherwise not available on reasonable terms
- a single system, that is, common terms and conditions applicable to all aircraft models
- greater differentiation of premium and interest rates, based on the credit risk of the borrower
- common credit risk rating of borrowers and classification of them by the export credit agencies
- higher premium and interest rates, reflecting risk-based rates plus a market surcharge
- inclusion of a material discount for the ratification (with the qualifying declarations) and effective implementation of the Cape Town Convention (CTC)
- regular adjustments to and reviews of its terms
These AWG materials are selective. They only address the essential and framework points in the 2011 ASU, seen from the vantage point of users of export credit. These documents provide neither legal advice on nor interpretations of the 2011 ASU.
A primary purpose of the OECD-organized consultations is to assess the relationship between the Aircraft Sector Understanding of 2011 and current commercial and capital markets, given the objective of ensuring a proper relationship between them.
In 2015, AWG submitted a fourth technical study for consideration by the stakeholders at their meeting held on 20 November 2015, continuing its participation in the process.
To facilitate that assessment, AWG has regularly submitted materials to the OECD, and, through it, to the governments participating in the 2011 ASU. These materials include three previous technical studies in addition to the November 20, 2015 submission. All of these studies were authored by AWG’s independent technical export, Professor Vadim Linetsky, Ph.D., Northwestern University.
In November 2019, AWG will present and submit an updated ASU versus market comparison to the OECD. It will be the fifth technical study. It will take into account the increased capital required under Basel III/IV, which may pressure, as in the past, AWG’s position on ‘market primacy’ vis-à-vis export credit. This study will also be authored by AWG’s independent technical export, Professor Linetsky.
The OECD publishes the currently applicable minimum premium rates (revised July 2018) at the time of any adjustment as well as the margin benchmark for civil aircraft. All historical adjustments under the 2011 ASU have been collected and are available on the OECD site.
Such OECD materials may include information relating to the applicable liquidity premiums for direct credits, and, given the grandfathering clauses in 2011 ASU, the annual resets of the minimum premium rates for (category 2 and 3 aircraft) under the 2007 ASU.