News that the French government, and perhaps some other European countries, will provide banks with funds to finance aircraft ordered from Airbus, a unit of EADS (5730.FR), gives a boost to the commercial aerospace sector, according to the head of an international aircraft leasing company.

In an interview Tuesday, Klaus Heinemann, chief executive of AerCap Holdings N.V. (AER), based in Amsterdam, said that, without government help, the dry-up of available bank funds this year might have forced Airbus to shut down aircraft production. From a government's point of view, "it's a question of helping the company directly or paying for unemployment benefits for employees at Airbus and its many suppliers," he said.

In the commercial aerospace industry, there's an unprecedented market of willing buyers and sellers unable to complete multi-million dollar transactions, he said. "They need money for the pre-payment, of 20% to 25% of the sales price, as well as for the payment on delivery," Heinemann said. The French government has directed banks to make that money available, and Germany and other countries are mulling it over, he said.

Boeing Co. (BA), a keen competitor of Airbus on both large aircraft sales and on resulting international trade issues, had no comment Monday on the news that France will provide $5 billion for banks to finance deals for Airbus customers.

In the current credit crisis, trade fairness is a moot point, Heinemann said, noting that U.S. automakers and banks already have received much-needed government funds. While that may give them an unfair advantage with foreign competitors, it literally has saved their lives.

Boeing and other U.S. aerospace companies could ask for help from the U.S. TARP program, which is similar to the support France is offering.

The U.S. Export-Import bank is another source of financing for foreign buyers, although there are lending restrictions related to the countries where customers are based.

Late last year, Boeing said it was working to assist its customers to secure financing for aircraft purchases, and that the Boeing Capital Corp. unit was prepared to step in with its own money as a last resort.

EADS said it, too, has some ability to offer financial help to customers.

But most aircraft buying is backed by banks. Bank loans are almost impossible to get now, and where they are available, interest rates have spiked to unsustainable levels, said John Pritchard, a partner and specialist in aircraft financing at the Knight & Holland law firm in New York. Southwest Airlines Co. (LUV), for example, said in December that it paid 10% interest on financing, double the usual rate.

Airlines Cut Back, But Still Need New Planes

The global recession has cut into air traffic, forcing many airlines to abandon growth plans. "It varies case by case, but there are airlines out there that need to take delivery on new, more efficient aircraft," Pritchard said. American Airlines, a unit of AMR Corp. (AMR), and some other carriers are cutting out unprofitable business, but they continue to replace some older planes with new models.

Heinemann, the leasing company executive, said the industry experienced a number of aircraft deferrals and cancelations last year, so "most of the fluff is out of the order book." In particular, he pointed to the market in India, where a number of financially weak airlines went out of business in 2008.

The growth of air traffic tracks global economic growth. In the past few years, the global airline industry grew rapidly, with airlines in China, India, and the Middle East catering to an explosion in air travel. Private equity investors and hedge funds jumped in to help finance new aircraft to support that growth.

In recent years, the aircraft order cycle peaked, with Airbus taking 777 orders last year, down from a record 1,341 orders in 2007, and Boeing tallying 662 orders last year, down from 1,407.

Airbus chief Thomas Enders said at a conference this week that Airbus orders in 2009 could fall by as much as 50% to 60% from last year. Even so, both Boeing and Airbus have order backlogs to fuel production for the next five to six years.

Heinemann said AerCap's business is feeling a pinch from the recession, but the leasing company continues to find homes for its fleet of more than 300 newer aircraft.

-By Ann Keeton; Dow Jones Newswires

312-750-4120; ann.keeton@dowjones.com

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