Detail from Ancient Greek black-figured dinos (wine-bowl) with the first chariot in the procession

Detail from Ancient Greek black-figured dinos (wine-bowl) with the first chariot in the procession
“Sophilos Dinos” (wine-bowl) showing guests arriving at the wedding of Thetis and Peleus. In the first car -Zeus and Hera, 2nd-Poseidon and Amphitrite. Source: British Museum (Wikicommons)

Saturday, March 22, 2014

Business Aircraft Finance Primer

Having the flexibility afforded by private air transportation is an important time-management tool for businesses that have operations in harder to reach/widely dispersed geographical locations.

According to the NBAA, an industry lobbying group, the majority of business aircraft seat six passengers and fly an average trip of less than 1000 nautical miles. Very light jets seat 6 to 8, have a max. range of 1178 nautical miles and cost $2 -4 MM. That's where we should see the most demand in terms of outright purchases.

Having the flexibility afforded by private air transportation is an important time-management tool for businesses that have operations in harder to reach/widely dispersed geographical locations.

According to the NBAA, an industry lobbying group, the majority of business aircraft seat six passengers and fly an average trip of less than 1000 nautical miles. Very light jets seat 6 to 8, have a max. range of 1178 nautical miles and cost $2 -4 MM. That's where we should see the most demand in terms of outright purchases.

The business aircraft finance area, part of the larger equipment/asset-based lending (ABL), has gone through some challenges since the 2008-09 recession. It is still possible and feasible to finance aircraft at 250-300 Bps over Libor rates. Since plane makers demand 20-30% down payment leasing may be the more attractive option to buying. The old rule was the aircraft age + loan term be less than 25, now it's likely 15 to 20. The newer the aircraft, the longer the term loan.

Banks Rule: typically, banks seek to get the airplanes back at or before engine midlife.

Business aircraft finance is governed by various federal statues and regulations as well as The Cape Town Convention (2006), which the United States has ratified, and which applies to, among other things, secured loans, leases, contracts of sale, and certain other interests and “associated rights.”

Each financing customer will register with the International Registry to become a “transacting user entity.” Each financing customer must designate an “administrator.” Lastly, creditors will require their customers to designate a “professional user".Source: CTC


Leasing may be the most efficient way of using an aircraft - if you lease, you don't worry about market depreciation. When the lease is over you still would have paid less since the lessor wrote off the airplane on an accelerated basis (an aircraft can be written off to a zero tax basis).

Leases are of three types:

  • Capital
  • Operational
  • Synthetic: a SPE (Special Purpose Entity) buys the aircraft and leases it back to the operator.







Useful terms:

A wet lease - aircraft and crew members. Chartering is essentially similar to wet leasing of the aircraft.

A dry lease - no crew. Dry leases are usually subject to various conditions designed to prevent any impairment (like inability or bankruptcy) to returning the aircraft.

Green aircraft financing- the parties agree to have two or more fundings, first one when the aircraft is still unfinished, not yet customized, and the second when the aircraft's been completed.

In a head lease, also called a master lease, the lessor is the aircraft owner and controls one or more subleases.

Third Party use and Operation

One may wish to charter or sublease an aircraft to recover some of the acquisition costs, but must do so properly not to undermine his own rights.


Affiliated Parties/Guests

Use Part 91.501 of the FARs contains provisions for use of an aircraft for an affiliate for transport of the customer’s officials, employees and guests ( or pursuant to interchange or time-sharing agreements).

Useful considerations for biz jet leases:

NBAA Aircraft Operating & Leasing Package

FAA regulatory requirements for aircraft leases

Modeling Aicraft Loan & Leases- a paper by Nils Halerstom @ PKAir.





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