Alternative means of raising finance with a special emphasis on the shipping and aviation industries

Abstract

The Global Financial Crisis, followed by the European Sovereign Debt Crisis, shook the foundations of the shipping and aviation financing industries to their core. Bank liquidity dried up in the wake of the crises, triggering the withdrawal of a number of banks across the world from the shipping and aviation lending markets. The capital-intensive shipping and aviation industries, which were traditionally heavily reliant on bank lending, were forced to seek alternative means of finance to fund their fleets. These industries are cyclical in nature, historically experiencing periods of peaks and troughs. The shipping industry was particularly hard hit by the credit crunch and has struggled to recover from what has been coined as a ‘perfect storm’. The industry witnessed a number of casualties, as some major shipping companies filed for bankruptcy due to the significant challenges faced in obtaining finance. Although the aviation industry was not immune to the effects of the crises, the impact was somewhat less intense. The industries initially turned towards Export Credit Agencies for their funding needs, with financing through debt capital markets gaining significant traction in recent years. Although securitisation financing was stigmatised as the root of the sub-prime mortgage crisis, the EU has made efforts to revitalise securitisation through its proposed regulatory reforms that promote simple, transparent and standardised securitisation structures. History has shown that in the face of economic downturns, new entrants always stepped in with innovative financing techniques to fund the gap, demonstrating the resilience of the industries to ‘black swan’ events and their importance as major role players in global economies.