AIRBUS - 2019 Registration Document

REGISTRATION DOCUMENT 2018 Risk Factors  /   1 Financial Market Risks

Sales Financing Arrangements

the event of a financing customer default at a time when the market value for a used aircraft has unexpectedly decreased, the Company would be exposed to the difference between the outstanding loan amount and the market value of the aircraft, net of ancillary costs (such as maintenance and remarketing costs, etc. ). Similarly, if an unexpected decrease in the market value of a given aircraft coincided with the exercise window date of an asset value guarantee with respect to that aircraft, the Company would be exposed to losing as much as the difference between the market value of such aircraft and the guaranteed amount, though such amounts are usually capped. Through the Airbus Asset Management department or as a result of past financing transactions, the Company is the owner of used aircraft, exposing it directly to fluctuations in the market value of these used aircraft. In addition, the Company has outstanding backstop commitments to provide financing related to orders on Airbus’ and ATR’s backlog. The Company’s sales financing exposure could rise in line with future sales growth depending on the agreement reached with customers. The Company remains exposed to the risk of defaults by its customers or significant decreases in the value of the financed aircraft in the resale market, which may have a negative effect on its future financial condition and results of operations.

In support of sales, the Company may agree to participate in the financing of selected customers. Over the last three years (2016 to 2018), the average number of aircraft delivered in respect of which financing support has been provided by Airbus amounted to less than 1% of the average number of deliveries over the same period, i.e. 4 aircraft financed per year out of 735 deliveries per year on average. The risks arising from the Company’s sales financing activities may be classified into two categories: (i) credit risk, which relates to the customer’s ability to perform its obligations under a financing arrangement, and (ii) aircraft value risk, which primarily relates to unexpected decreases in the future value of aircraft. Defaults by its customers or significant decreases in the value of the financed aircraft in the resale market may materially adversely affect the Company’s business, results of operations and financial condition. The Company’s sales financing arrangements expose it to aircraft value risk, because it generally retains security interests in aircraft for the purpose of securing customers’ performance of their financial obligations to the Company, and/or because it may guarantee a portion of the value of certain aircraft at certain anniversaries from the date of their delivery to customers. Under adverse market conditions, the market for used aircraft could become illiquid and the market value of used aircraft could significantly decrease below projected amounts. In

Counterparty Credit

The Company’s credit limit system assigns maximum exposure lines to such counterparties, based on a minimum credit rating threshold as published by Standard & Poor’s and Moody’s. If neither is present Fitch ratings is used. Besides the credit rating, the limit system also takes into account fundamental counterparty data, as well as sector and maturity allocations and further qualitative and quantitative criteria such as credit risk indicators. The credit exposure of the Company is reviewed on a regular basis and the respective limits are regularly monitored and updated.

In addition to the credit risk relating to sales financing as discussed above, the Company is exposed to credit risk to the extent of non-performance by its counterparties for financial instruments, such as hedging instruments ($81.8 billion nominal value at 31 March 2019) and cash investments ($18.5 billion nominal value at 31 March 2019). However, the Company has policies in place to avoid concentrations of credit risk and to ensure that credit risk exposure is limited. Counterparties for transactions in cash, cash equivalents and securities as well as for derivative transactions are limited to highly rated financial institutions, corporates or sovereigns.

As of 31 March 2019 the credit exposure had been estimated as follows:

Unexpected Loss Contribution

Source of risk

Exposure

Banks

4,949

70

Corporates

6,731

211

Sovereign Issuers

1,156

8

Money Market Funds

4,527

8

Total

17,363

297

sovereigns in order to avoid an increased concentration of credit risk on only a few counterparties.

The Company also seeks to maintain a certain level of diversification in its portfolio between individual counterparties as well as between financial institutions, corporates and

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Airbus / Registration Document 2018