It predicts as much as $17.5 billion will be needed next year to help finance the delivery of new business jets(1)
Global Jet Capital, a global provider of financing solutions for corporate aircraft, has seen a strong increase in enquiries to finance mid to heavy private jets. Enquiries during the third quarter of this year were 59% higher than the second quarter of 2016, and 240% higher than the same period last year.
Global Jet Capital estimates(1) that as much as $17.5 billion of funding will be needed in 2017 for business jet deliveries. It estimates that around 27% of this will be raised by high net worth individuals, with the rest evenly split between private and publicly listed companies.
The company currently has $2.5 billion in assets under management, and is revealing today that around 67% of this is through leasing via an operating lease and the remaining 33% is where it has provided funding to clients via loans and capital leases.
Shawn Vick, Executive Director and Chairman of Executive Committee, Global Jet Capital, said: “The majority of acquisitions of new and pre-owned jets use third-party capital to fully or partially fund the acquisition of the private aircraft they wish to use. We offer a range of tailored solutions and are seeing a growing interest across all of these.
“Combined, our management team has over 200 years of service to the private aircraft industry, and between us we have completed over 3,500 aircraft transactions. We have the expertise, financial strength and industry relationships to develop tailored and flexible financing solutions for our clients.”
Global Jet Capital has over $1 billion to lend. Below is a brief description of the finance options available.
LEASING VIA AN OPERATING LEASE
In an operating lease the private aircraft (new or pre-owned) is purchased by a third-party financial institution (the lessor) and then leased to the operator (the lessee) for a stated term and rent. The lease is documented as a contract between lessor and lessee with both parties having certain obligations to each other, primarily regarding the operation and care of the aircraft. Title to the aircraft resides with the lessor, and the lessee enjoys the use of the aircraft as if it were their own.
The alternative to an operating lease is to retain ownership of the aircraft and use third-party financing for a portion of the acquisition cost. This could be a senior secured mortgage loan or other financing structure, such as a finance lease.
In a typical loan structure, the third-party lender advances between 50% and 85% of the aircraft value to the borrower by way of a secured loan. The difference in advance rate may be a result of the borrower’s credit status, the age or type of the aircraft, or other factors. The security interest is typically a mortgage interest in the aircraft, giving the lender a first-priority security interest in the aircraft. This security interest is designed to offer the lender protection in the event of a default by borrower. Proceeds from liquidating the aircraft after a default are intended to repay the aircraft lender ahead of other creditors. Other loans may be available, particularly for individuals that have a substantial private banking relationship with a lender. In such instances the underwriting of the loan may focus as much on the financial assets held by the individual as the aircraft in determining the nature of the financing.
Title to the aircraft typically remains with the borrower in the secured-loan structure. The loan is usually repaid over a multi-year period to a balloon amount (a lump sum payment at the end of the loan repayment schedule). The loan, including the balloon payment at the end, is usually recourse to the borrower, meaning any deficiency the lender incurs (post default and sale of the aircraft) will still be owed by the borrower. In certain non-recourse or limited-recourse loans, the borrower will have fewer obligations of this nature, but typically at a higher rate of interest.
An alternative to the senior secured loan is the finance lease. Unlike an operating lease, the lessee does not return the aircraft to the lessor at lease expiry. In a finance lease, the operator makes scheduled lease payments along with a final balloon payment at the end of the multi-year finance lease term. When the final payment is made, title to the aircraft (which had been held by the lessor) will transfer to the borrower. At this point in time the aircraft is fully owned by the lessee and there are no further financial obligations to lessor.
Global Jet Capital launched in 2014 and is capitalized by three global investment firms – GSO Capital Partners, a Blackstone company in partnership with Franklin Square Capital Partners*; The Carlyle Group; and AE Industrial Partners. In January 2016 Global Jet Capital completed the purchase of GE’s corporate aircraft lease and loan book in the Americas.
Note(1) Based on Global Jet Capital’s own data and its analysis of 2016 – 2025 Bombardier Business Aircraft Market Forecast