Background Information
New international agreement establishes rules for aircraft financing

• Uniform treatment of all types of civil aircraft
• Premium pricing model reflects market conditions
• Level playing field for financing extended

After about one year of tough negotiations a new agreement on export financing of civil aircraft entered into force on OECD level on 1 February 2011. As part of the OECD Consensus the Aircraft Sector Understanding (ASU) establishes general rules for the granting of state export credit guarantees for aircraft exports. In Germany the NASU applies to the Export Credit Guarantees of the Federal Republic of Germany (Hermes Cover). During a transition period of two years existing contracts can still be covered under the terms and conditions of the previous agreement.

With the ASU 2011 the OECD countries and Brazil as the most important aircraft producing nation outside the OECD reached an accord that creates a level playing field for all market participants. The distinction previously made between the various categories of aircraft (large aircraft, regional jets and small aircraft) has been abandoned in favour of uniform conditions for all types of aircraft. For example, it has been agreed that as a rule the maximum credit period for supported credits must not exceed 12 years irrespective of the type of aircraft.

As far as the pricing of the export credit support is concerned, the participants to the agreement adopted a totally new approach. The premium continues to be based on the creditworthiness of the foreign buyer and the country. However, a market surcharge will be added in future which is revised on a quarterly basis. An independent, database-supported model will be used for its calculation. The surcharge calculated on this basis and reflecting the market situation will be binding for all transactions. Thus the premium payable for export transactions in the best risk category will now amount to more than 7 percent of the covered loan amount when calculated in accordance with the new ASU.

The Federal export credit guarantees (Hermes Cover) have been the most important instrument of state export promotion in Germany since 1949. Providing protection against bad debt losses for commercial and political reasons has been the central issue especially in connection with supplies to difficult and risky markets.