Airline exposures threaten Landesbank ratings

Germany’s state-controlled Landesbanks could see their premier ‘AAA’ ratings downgraded due to large exposure to the airline industry. Landesbanks, which have carved a niche in airline financing in the past few years, have gross exposures to the airline sector of more than 50% of equity. This compares with an industry average of between 2% and 10% for European and US banks.

“Fitch does not rule out taking action on its individual ratings of Landesbanks as a result of their exposure to airlines,” said Fitch’s financial institution analysts in a research note released today. “The low profitability and capitalisation of the Landesbank sector, and its wholesale focus, makes its banks more vulnerable than most to such events.”

Landesbanks are still establishing whether to make provisions this year against potential futures losses on airline exposure. This comes at an