Aircraft Finance – in brief
Why Finance my aircraft?
- Aircraft buyers finance their aircraft purchase for numerous reasons. Some require financing to pay for the aircraft, thus reducing the required cash outlay and spreading the capital expenditure over a longer period, and others do it to make the best use of their capital. If an aircraft purchaser can borrow against their aircraft, that capital can be deployed more efficiently elsewhere.
Financing options include: secured loan, finance lease and operating lease.
How it works?
- Financiers may have different ways of presenting terms, but normally provide high level economics such as the interest or lease rate, the length of term, the amortization and the fees involved.
If the economics meet your requirements, a non-binding agreement is typically reached in a more detailed term sheet or proposal letter that may or may not be signed. The term sheet sets out the economics in more detail, along with some information on the aircraft operation and financing structure. Some financiers ask for credit information prior to providing a term sheet, others will provide you with a preliminary term sheet before a credit review, but will reserve the right to make changes after reviewing the borrower’s credit. The term sheet should include any specific requirement the financier needs to impose. These vary, but may include financial covenants, operational restrictions and maintenance requirements.
With an agreement reached and a deposit paid, a financier will commence their due diligence process, which will analyze your financial position plus the proposed asset and financing structure. This process eventually results in a credit approval to lend. Financiers have different processes to reach a decision, but once approved, your deal can move into the legal documentation process required for funding. Remember, as a borrower do not assume you have commitment to finance your aircraft on specific terms until the financier has told you he/she has received credit approval. A potential borrower should also ask for clear terms under which their deposit may or may not be refundable.
The documentation process can take from 2 to 6 weeks depending in the complexity of the structure and the level of negotiation.
Once documentation is signed, the financing and closing take place concurrently. Your payments will commence and there may be reporting requirements throughout the life of the loan or lease so that the financier can keep track of your and the aircraft’s performance.
The average time taken to receive approval and document a deal is three months.
How do I find finance?
- FlyFunder is the only platform that allows you to quickly and efficiently determine your financing options from a range of global finance providers.
FlyFunder uses a sophisticated matching process to bring buyers and financiers together.
The market is constantly changing, with new financiers entering the market and occasionally financiers leaving the market. Other financiers may change their institutional lending criteria. It is impossible for even the most connected manufacturer, broker or consultant to understand the requirements of every institution, but with FlyFunder, the financiers come to you.
Financiers include banks, specialty finance companies or leasing companies, each with specific jurisdictional appetites and deal type and size requirements. Export credit agencies, who are government groups supporting their own domestic exports, can also provide financing where commercial financiers are unable to provide a solution for the buyer. This is particularly helpful in countries considered higher risk by other traditional financiers.
What are the costs?
- The cost of financing an aircraft is directly associated with the amount of risk financiers attribute to the deal in addition to their cost of funds.
Each financier has a different approach to pricing, but will typically assess the risk associated with the customer’s financial position (credit), the aircraft, usage of the aircraft, financing structure and operating jurisdiction in order to come up with a pricing proposal.