Airbus Parent Warns French Banks Having Further Liquidity Issues
A few weeks ago it was Siemens pulling money out of French banks, then it was the Chinese, now it is EADS' (Airbus parent European Aeronautic Defence & Space) turn to warn about French bank liquidity. From Dow Jones: "French banks are experiencing difficulties providing financing for aircraft purchases by airlines, a market that is largely dominated by dollar transactions, Louis Gallois, chief executive of European Aeronautic Defence & Space Co. (EAD.FR, EADSY), said Monday. "French banks clearly have problems financing aircraft purchases," he said, speaking on the sidelines of an event to launch a new French think-tank to promote the French industry. Mr. Gallois's comments come as French banks have indicated that they were planning to cut back on dollar financing, as raising dollars has become increasingly difficult." Not like any of this will come as news to anyone who does not get their news from the mainstream media, but it is something different to see it in practice. Net result: we now finally see why companies are hoarding so much cash on their books - in lieu of an insolvent banking system, they are all becoming their own vendor and customer financing providers! Luckily, a government subsidized EADS is not as insolvent as its peer banks: "EADS is cash rich, and is not faced with any problem when it comes to buying parts in dollars, he said. "We aren't experiencing any dollar shortage," he said, adding that "we know how to deal with it."
EADS has a large cash cushion of some EUR12 billion that it can dip into if necessary to help customer airlines of its Airbus division if they experience financing difficulties. But Gallois said this facility will be used sparingly. "We're not bankers," he said, noting that in the financial crisis of 2008 and 2009 the company had set a ceiling for such financing aid of EUR1 billion but this had never been reached. At that time, state-backed export credit financing agencies stepped in to ease the financing crunch, helping to finance about one-third of Airbus deliveries during that period, compared to about one-fifth at present.
"We are prepared to make an effort as regards financing our sales, but only in a reasonable way," he said. "We can increase our efforts, but there are limits that we can't cross," he went on.
Rival plane maker Boeing Co (BA) recently called on cash-rich Middle East banks and investors to plug a potential financing shortfall of its aircraft as European banks reel from the region's sovereign debt crisis.
Dubai-based Emirates Airline's president Tim Clark told Dow Jones in late September that some French banks that have long helped fund its huge aircraft investment program are showing signs of retreating in the face of the region's sovereign debt crisis.
Recent speculation about a possible liquidity crunch at some big French banks traditionally involved in aircraft finance--something that the banks and others have denied--has raised questions over their near-term role in the sector.
His assessment of the economy?
"We're in a very unstable financial situation," he went on. "I hope decisions can be taken soon (by euro-zone policy makers) as uncertainty generates fears and speculation."
And with that out of the way, the panicked short squeeze may continue for the 5th day in a row.
h/t London Dude Trader