Aircraft Financing in a Post-COVID-19 World – What Role Could ECAs Have in Promoting Sustainability?


Covid-19 is an unprecedented health and economic crisis, and it is still unclear how and when the aviation industry will begin to recover. Global government support to the aviation sector has been inconsistent, with varying levels and forms of support offered to airlines and other companies in the sector. As companies continue to pressure governments for their support, it has been suggested that export credit agencies (“OCE“) may need to step up, as they have done in previous crises, to fill a reduced commercial debt capacity for aircraft that is likely to exist. During the global financial crisis of 2008-2009, European ECAs have financed up to one-third of Airbus’ annual deliveries and the Export-Import Bank of the United States supported about 20% of Boeing’s deliveries. Given the unique role of ECAs in providing state-backed finance , could the current crisis offer governments the opportunity to assert their commitment to promote the environment, social and governance (“?ESG“) responsibility?

In the context of aircraft financing, ECA financing is a term used to describe transactions in which state financial support is provided to purchasers of aeronautical equipment exported by companies related to the jurisdiction of origin of the ‘ECA. Such support can be provided directly by sovereign bodies, through separately mandated organizations, or through state-owned enterprises. In the aviation industry, this is usually done by providing financial support to buyers in the form of loans, government guaranteed guarantees, or default insurance. As a result of this focus, ECAs have different priorities and are subject to regulatory constraints and reputational risks different from those of other financial parties. While ECAs may assess risk differently (and have a different risk appetite) than commercial lenders, they will always be concerned with protecting their creditworthiness and avoiding reputational spillovers from losses to taxpayer funds.

ECAs are also subject to a different regulatory regime from that of other financing parties. ECAs are subject to World Trade Organization rules and OECD guidelines on export credits, state aid and sanctions, as well as specific disclosure and transparency, which vary from jurisdiction to jurisdiction. A number of ECAs, especially in Europe, have integrated ESG considerations into their own internal policies. For example, each of the UK Export Finance (“UKEF”), Bpifrance Assurance Export SAS and Euler Hermes adopted the OECD Council Recommendation on Common Approaches for Public Support Export Credits and Environmental and Social Due Diligence. In 2016, UKEF also adopted the Equator Principles and now, quite naturally, identifies and conducts due diligence to assess the environmental, social and human rights impacts of the projects it plans to support.

Policymakers are undoubtedly well aware that as public attitudes towards ESG issues have changed, the reputation risks of being on the “wrong” side of the ESG debate have also increased. More recently, this has been confirmed in the aviation industry by the rise of “flightshaming” and fallout from the downtime of the Boeing 737 Max and scrutiny of Boeing’s use of share buybacks. The reputational impact of ESG issues on funding supported by the ECA is increasing. This was a problem for UKEF as late as March 2020, when UKEF was accused of violating OECD guidelines governing multinational organizations in its decision to fund fossil fuel projects at abroad. The NGO Global Witness lodged a complaint with the OECD, alleging that the UKEF failed to properly account for climate-related risks and that UKEF did not properly report on its greenhouse gas emissions greenhouse or did not have emission reduction targets. The complaint, which is the first of its kind against an ECA, will see UKEF enter a “body specific” review process mediated by the UK’s national contact point at the OECD, which cannot oblige companies to develop climate risk strategies, but who can publicly state that the OECD guidelines have been violated. The recent Court of Appeal ruling to declare the UK government’s political support for a third runway at Heathrow illegal because ministers failed to take sufficient account of the government’s commitments to tackle climate change in The framework of the Paris Climate Agreement may also indicate the type of constraints and controls that public bodies such as ECAs will be subject to environmental issues in the future, although at the time of writing this document , the judgment of the Court of Appeal is appealed to the Supreme Court.

In many countries, government financial aid programs have sparked heated public debate about which companies should be considered “worthy” of government support. As the current crisis has evolved, even airlines that have criticized previous bailout requests from their competitors are now turning to the government for help. The Air France and KLM bailout headlines show us that governments can use the current crisis as an opportunity to demand greater sustainability commitments from the airline industry. MPs and Greenpeace have already expressed their intention to hold the French and Dutch governments to account both by asking for details on how these conditions are implemented and by demanding that the European Commission assess any bailouts with its Green policies. Deal firmly in mind. There is no doubt that similar pressures will also be exerted, on other governments providing similar bailouts, by pressure groups around the world.

At the same time, there have also been disturbing signs that progress on environmental initiatives could be delayed or canceled due to the impact of the virus. There are already suggestions that the European Commission’s timeline for proposals to boost supply and demand for sustainable aviation fuels will be delayed and Airbus has announced the end of its collaboration with Rolls Royce to develop an electric motor. hybrid citing that the project is ‘non-critical’ at this time. As economic power shifts from baby boomers to millennials, there is also a risk that millennials, who came of age during the 2008 financial crisis and will suffer long-term economic fallout from this crisis, may view prioritizing ESG issues as a luxury they can no longer afford. ‘review of investment opportunities, if such a change were to occur it could be a devastating blow to all those concerned with the advancement of social causes ial and environmental.

The pandemic has brought to light in a way unimaginable five months ago, the vulnerability, fragility and interdependence of our societies, economies and the planet as a whole. The fact that the pandemic and many other recent epidemics (SARS, MERS and avian influenza) have been linked to the illicit trade and consumption of wild animals (often endangered species) has highlighted the links between human activity and the loss of biodiversity. ECAs, through their role of financially supporting exports and international trade to support manufacturers who rely on supply chains around the world, are in a unique position to influence ESG agendas.

Time will tell how public opinion will address these issues. However, if they further promote state activism, ECAs could have an important role to play. ECAs have already demonstrated their willingness to promote ESG principles through the criteria they apply when evaluating applications. In the future, could it be argued that ECAs should prioritize supporting participants in the airline industry (be they donors, airlines or manufacturers) who commit non-commitment? only to respect, but improve, their environmental references? Could additional criteria be developed by ECAs which would set the bar higher than it currently is?

The pandemic has opened the door to the possibility that some businesses will only survive if they receive government support. As the full impact of the crisis on public finances becomes evident, such support is likely to become increasingly contingent on public acceptance that it is ‘good’. use of taxpayer funds. Even without a conscious change in state policy, OCEs, due to existing and proposed regulations (such as the EU Low Carbon Benchmarks Regulation and the Taxonomy Regulation) and the Paris climate agreement, may still be the subject of increased public scrutiny if they again play a more central role in aircraft financing.

Covid-19 has changed the stake the public and government have in private business – in the future, the difficult question for policymakers will be whether their focus should be solely on economic recovery to bring us back to the old ‘normal’ or if the level of state support needed to get economies back on their feet can be used, under the auspices of organizations such as ECAs, to advance an agenda that rebalances the balance between growth. economic and environmental, social and governance concerns and that accelerates the movement of the global economy to a more sustainable ‘new’ normal.



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