a buyer's guide to business aviation aircraft financing
TRANSCRIPT
A BUYER’S GUIDE TO BUSINESS AVIATION
AIRCRAFT FINANCING
Leasing & Lending Solutions for Private Aircraft
Tradi t ional loan f inancing and leasing represent two di fferent ways that a business or pr ivate c i t izen can acquire a jet to be used for personal t ransportat ion, and
avoid f ly ing on commercial a i r l ines. There are advantages and disadvantages to al l strategies for a i rcraf t acquis i t ion, and these frequent ly have signi f icant economic
components, so any indiv idual consider ing some kind of a i rcraf t purchase or lease would be wel l -advised to understand the issues related to both.
One of the most important th ings to consider when
contemplat ing leasing or purchasing an aircraf t is
the expected level of usage dur ing a given year.
I f usage is expected to be below the threshold of
between 250 and 350 hours per year, ownership
probably is not the most advantageous opt ion, and
leasing might be more economical ly benef ic ia l .
Purchasing an aircraf t can be very advantageous,
i f af ter a l l payments have been made, the aircraf t
is then sold for prof i t , especial ly s ince the owner
wi l l have enjoyed the use of the jet dur ing that
per iod. Considerable tax advantages accrue to
the owner as wel l , s ince i t is an asset that can be
depreciated at a set rate every tax year. Some of
the disadvantages of ownership are that s igni f icant
capi ta l is t ied up in the aircraf t as equi ty and
resale values can f luctuate widely depending on
prevai l ing economic condi t ions.
Leasing an aircraf t has some dist inct advantages,
s ince i t general ly involves a low in i t ia l payment,
and at the end of the lease per iod the lessee can
simply walk away from the agreement, or cont inue
i t at h is discret ion. Having the opt ion to ei ther
return, upgrade or renew your aircraf t lease at
the end of the agreement al lows you to void
the changing costs of maintenance, upkeep
and technological advances as your
pr ivate jet depreciates in value over t ime
and replacement parts become harder
to f ind or discont inued al together.
01
LEASING VS. PURCHASING
The three basic f inancing opt ions avai lable
in the market to would-be aircraf t owners
are outr ight ownership, a i rcraf t loans, and
operat ing leases. Outr ight ownership can
be an ideal scenar io for a company i f i t
has the cash to purchase an aircraf t v ia a
one-t ime cash payment which immediately
t ransfers ownership to the company, and
gives i t fu l l r ights for usage or leasing to
other part ies.
An aircraf t loan involves borrowing money
from banks or other lenders in order to
make an aircraf t purchase, and typical ly
includes a loan agreement, promissory
note, and a secur i ty agreement. Together
these three components out l ine the terms
of the loan, the interest rates, a promise to
repay the borrowed amount wi th interest ,
and a grant to the lender of a secur i ty
interest in the aircraf t .
02
OWNERSHIP FINANCING
OPTIONS“ “OUTRIGHT OWNERSHIP CAN BE AN IDEAL SCENARIO FOR A COMPANY.
LEASING OPPORTUNITIES
The three di fferent k inds of leases are
known as operat ing leases, f inancing
or capi ta l leases, and synthet ic leases.
The most popular leasing arrangement is
the operat ing lease, in which the lessee
acquires possession of the aircraf t for the
leasing per iod, whi le the lessor remains
i ts actual owner.
The f inancing lease includes an opt ion for
the lessee to own the aircraf t outr ight at
the end of the leasing per iod, assuming
al l payments are made prompt ly and in
fu l l , so in th is scenar io the f inancing lease
basical ly becomes a purchase instal lment
agreement. The synthet ic agreement
incorporates elements of both these
leasing types, in that i t is fundamental ly
an operat ing lease, but is structured
in such a way as to be considered an
expense on the income statement, rather
than a l iabi l i ty on the balance sheet.
03
““THE MOST POPULAR IS THE OPERATING LEASE.
RETURN ON INVESTMENT (ROI)
Companies that require a return on investment for a l l cash
dol lars spent are general ly looking to have money coming in
as a return for any cash investment, and this can even include
the purchase of an aircraf t . One way to set up this k ind of f inancial
scenar io is to hire out the aircraf t for use by th i rd part ies when i t is
not in use servic ing the pr imary owner(s).
Aircraf t management companies exist which offer th is service, s ince
i t is a common scenar io among owners looking to recoup costs dur ing
otherwise id le t ime for an aircraf t . With act ive management, an aircraf t
might be offered to other users dur ing most of i ts id le t ime, thus generat ing
considerable cash income for owners, and helping to defray a port ion of the
cost of operat ion and monthly payments.
04
THE MOST POPULAR IS THE OPERATING LEASE.
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