Financial turmoil to affect fuel hedging, financing of aircraft, says IATA's Bisignani

Kuala Lumpur: Current turmoil in the financial markets will hit the airline industry resulting in limited jet fuel hedging activities and also difficulties in financing new aircraft, according to director general and CEO of the International Air Transport Association, Giovanni Bisignani.

"Some of the concerns we have are on the financial system, limited hedging and financing on new planes," Bisignani said in a statement. He projects that 2009 would see a drop in capacity as less new planes come into the market "due to the problems of financing".

Bisignani also said though institutions, such as Exim banks, would continue to finance aircraft purchases they, however, were not likely to offer more than 20 per cent of the total financing.

IATA'S chief economist, Brian Pearce, said that over last year the number of commercial banks involved in aircraft financing had reduced due to the credit crunch. "It is becoming a real problem," he said.

As for an industry outlook, Bisignani said what the industry probably needed was "...a chief magician instead of a chief economist. But in any case, we are seeing a very difficult six months and a difficult year ahead of us."