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New OECD aircraft sector understanding signed by five governments

28-Feb-2011 10:12 AM

OECD  announced a new aircraft sector understanding (ASU)  was been signed on 25-Feb-2011 between five signatory governments: Brazil, Canada, the European Union (including France, Germany, Italy and the UK), Japan and the US. The ASU updates rules on the use of state financing in support of commercial aircraft exports by signatories. Russia and China participated in discussions on the new agreement during 2010 but have not yet decided to join. Substantial updates from the 2007 agreement include:

  • Unification of the terms, conditions and procedures under which export credit support is offered to large aircraft (manufactured by Airbus and Boeing) and regional aircraft (produced by Bombardier and Embraer);
  • Creation of a maximum 12-year term for export credit support;
  • Standardisation of the risk rating system (in terms of categories and fee levels) for all types of aircraft; and
  • Unification of underwriting standards, through the use of equivalent risk reduction techniques in all risk categories.
  • The ASU allows a transition period for certain previously ordered aircraft, which will be covered by existing financing terms, within time or volume limits for export credit financing. [more]

OECD Secretary-General Angel Gurría has invited China and Russia to join other countries in implementing a new set of international rules on aircraft financing. This happened during a signing ceremony in Paris today that included all other countries with aviation manufacturing sectors.

 

 

 “Russia is becoming a prominent commercial aircraft producer and China will begin production in the next few years,” Mr. Gurría said. “It is in everyone’s interest that all aircraft manufacturing countries join this new agreement so the market can function on a level playing field. The OECD export credit system provides enough flexibility to accommodate partner countries, as Brazil’s active participation has clearly demonstrated.” (Read the full speech)

The new OECD Aircraft Sector Understanding (ASU) updates widely-accepted rules on the use of state financing in support of commercial aircraft exports by five signatory governments: Brazil, Canada, the  European Union (including France, Germany, Italy and the UK), Japan and the United States.

 

Russia and China participated in discussions on the new agreement during 2010 but have not yet decided to join.

The ASU aims to maintain a level and transparent playing field across the global aviation sector. Governments have historically financed 20-30% of all global aircraft sales, making these new rules a key element in continuing efforts to bring order to the world trading system.

Implementation will bring fees for financing transactions closer to market conditions and create new mechanisms to smooth very sharp market movements.

Substantial updates from a previous agreement dating to 2007 include:

  • unification of the terms, conditions and procedures under which export credit support is offered to large aircraft (manufactured by Airbus and Boeing) and regional aircraft (produced by Bombardier and Embraer);
  • creation of a maximum 12-year term for export credit support;
  • standardisation of the risk rating system (in terms of categories and fee levels) for all types of aircraft; and
  • unification of underwriting standards, through the use of equivalent risk reduction techniques in all risk categories.

The ASU allows a transition period for certain previously ordered aircraft, which will be covered by existing financing terms, within time or volume limits for export credit financing.
 
The OECD has been at the forefront of multilateral efforts to harmonize state financing of exports for more than 30 years. The Arrangement on Officially Supported Export Credits, which came in to force in 1978, plays an important role in the multilateral trading system.  It helps ensure that both OECD and non-OECD exporters compete on the price and quality of their goods and services, not on the support they receive from their governments.
 
A Sector Understanding on Export Credits for Civil Aircraft was incorporated in the Arrangement in 1986. An update in 2007 included for the first time a framework for exchange of information and the prevention or early resolution of export credit-related disputes.