Buying & Leasing

As the number of high networth individuals (HNI) expands in India, there is a distinct possibility of purchases of private aircraft, luxury yacht, luxury cars going up. Unlike a yacht or a luxury car, the private aircraft doubles up as a business tool as well as a mode of leisure travel. With the HNI base going up, banking institutions and finance corporations are now lot more inclined to provide funds for private aircraft acquisition. The HNI group may fund it through its own resources or go for other options such as leasing/loan, etc, depending upon the consultations they have received from aircraft management consultants or experts. And financing is widely available for most types of business aircraft.

There are many indications that private aircraft acquisition will go up considerably as there is going to be a shift from cities, many of the major metros are choked to the limit, with regard to manufacturing activity is concerned. With governments giving incentives for putting up manufacturing units in backward areas and also due to unavailability of land in the metros or if it is available land rates are prohibitive, there is clear shift in location of manufacturing units. This trend has been happening for quite some time and access to these areas basically has been through land. However, many enterprises which value time have invested in private aircraft to ferry their executives, production units, etc, to and fro to the units. It is not only air charter operators who are expanding the fleet size, there are multinational companies and other big Indian companies who have started acquiring private aircraft, a major departure from only the Ambanis or the Mittals buying private jets. There are a number of business houses linked to mining, automotive, pharmaceutical, etc, which know the value of private aircraft and have invested accordingly. The financial institutions are made aware of this necessity and how private aircraft are crucial in saving time and money and that they are business tools.

Pre-finance considerations

For those HNIs who have their own funds, aircraft acquisition is one problem less. For those who have to borrow funds from the market, it is a herculean effort, particularly in India where an aircraft is not categorised as asset. In a white paper Atul Khekade and Ritesh Kakkad of Netz Capital Advisors state that “this makes it particularly interesting to set up a leasing and financing industry around private jets and helicopters considering India’s domestic banking policies and international financing structures.” The white paper provides a guide to those individuals/companies to buy an aircraft with an aircraft buyer’s check list. They state that the customer should look at personal or business utility based on current available nearest airport, airstrip size, local landing point or issues related to quick permissions for landing and take-off. Customers should keep clear focus on whether the usage of aircraft is personal or for charter or for a company and should not only look at aircraft price but also the cost of operation, local duty, insurance and cost of regular maintenance. Aircraft acquisition is one aspect, keeping the aircraft in flying condition is another apsect. The more the aircraft is in the air the better it is for a company.

Customers should keep clear focus on whether the usage of aircraft is personal or for charter or for a company and should not only look at aircraft price but also the cost of operation, local duty, insurance and cost of regular maintenance

The options for funding an acquisition include (a) direct cash payment (which is the cheapest way to finance aircraft); (b) bank loans (loan guaranteed by aircraft where the bank can repossess the aircraft in case of default – but banks do not normally give more than 75 per cent of the acquisition cost); (c) finance leases which are similar to loans, except that the financial institution buys the aircraft back from the operator (there is a monthly lease payment that the operator has to pay); (d) operating leasing wherein the lessors either order aircraft from manufacturers or buy them from airlines/operators and lease them for three to five years to those interested and these lessors also lease crew and pilots with the aircraft (known as wet lease) on a monthly rental basis; and (e) manufacturer support – while most manufacturers may not get involved in financing aircraft, but they do provide assistance with regard to locating financiers/lessors, etc. and also sometime guaranteeing the aircraft.

Pre-delivery financing

There are companies which also finance the down payments required by the manufacturer while the customer awaits delivery of the aircraft. The interest-only loan until delivery of the aircraft means that the customer does not have significant capital outlay until the customer is able to use the aircraft. Upon delivery of the aircraft, the facility can be converted to an amortising loan or a lease, depending on the customer’s requirements.

Aircraft leasing is less capital intensive as the lease rentals can be funded from the revenue generated from the operation of the aircraft. Further, leasing also helps in avoiding the time involved in delivery of aircraft. Typically there are two types of leases, dry and wet lease. A wet lease means operating lease of aircraft along with insurance, crew, maintenance, etc. On the other hand, a dry lease entails leasing of aircraft without the attached accompaniments. In India it is easier to lease an aircraft than buy an aircraft as the government processes for the latter are too cumbersome.

Finance support

While manufacturers do not provide finance, they do help in finding funds for the buyer. For instance, US-based Cessna Finance Corporation (CFC), a general aviation financing company, has provided over $16 billion towards aircraft finance across the world. In India, CFC has financed about nine aircraft to the tune of $52 million with various repayment options and varying loan periods, even going up to 20 years.

Global Jet Capital, major player

US-based Global Jet Capital is another firm which is majorly into leasing and lending solutions. With $2.5-billion in assets under management and its capacity to lend additional $1 billion, Global Jet Capital has the wherewithal to finance aircraft acquisitions across the world. The company offers a full range of aircraft financing solutions, products and services. Its bouquet of financial services includes operating leases; finance leases (or capital leases), junior loans and progress payment financing.

Recently, Global Jet Capital acquired GE’s fixed-wing Corporate Aircraft financing portfolio in the Americas. The outstanding part of the portfolio covered around 30 aircraft based in Mexico and Brazil, with these accounts now transferred to Global Jet Capital. Although the majority of the aircraft financed by the company are based in the US and Canada, Global Jet Capital sees strong signs of growth potential in markets outside North America. The Brazilian fleet of midsize, large cabin and jetliner business aircraft is around 330 strong, accounting for more than half the South American total. The equivalent Mexican fleet is approximately 570 aircraft, 60 of which were delivered in the last five years.

Shawn Vick, Executive Director of Global Jet Capital, said: “We are delighted to have fully completed the deal with GE, and brought the final tranche of accounts under the Global Jet Capital umbrella. This acquisition has allowed us to build a very strong base with secure income streams which will further enable us to develop into new markets. Mexico and Brazil are well established markets with good infrastructure. However, like in many regions, sources of funding are reducing in number so there is significant opportunity for us to step in and provide financing solutions.”

Dave Labrozzi, Chief Operating Officer of Global Jet Capital, said: “In my previous role at GE, I was heavily involved in establishing this portfolio and I’m really looking forward to building on it at Global Jet Capital. There is huge demand for aircraft financing around the world and we are expanding our team to help meet that demand and capitalise on new growth opportunities.”