Like any other high asset acquisition, the financing routes available to buy a private or a business aircraft are own source of funds; secured loans from banks and other financial institutions; and lease. On the market there is availability of both new and used aircraft and there are aircraft management companies that can help out in acquisitions. A very light jet can cost up to $1.5 million and a large jet such as a Boeing Business Jet or an Airbus Corporate Jet may go upwards of $70 million, depending on what you are going to be fitting on the luxury jet.

Besides the regulatory process of licensing and acquiring an aircraft, one of the most important aspects is how to finance the acquisition of the same. Depending upon usage and ones’ own capacity to buy an aircraft, the choice can be made from a cash down kind of payment to a loan or a lease.

However, importing an aircraft into India is no joke by all means. One has to go through several processes of the Ministry of Civil Aviation and heartburns before one can really get the aircraft delivered. If a company is buying for non-scheduled operations, then it has to convince the lending institution on the viability of the business and in this case the charter business is a high-risk business. Any financing comes with a price. Majority of the business jet imports that are happening in India are for corporate and their captive charter company.

Leasing of private jets by NSOPs is a good option as it is less capital intensive. Depending upon the business model and how the company operates, the lease rentals can be repaid from the revenues generated. Besides, in leasing it is easier to get an aircraft, particularly used or those on the inventory of the leasing company. The time involved in delivery of leased aircraft is much less than acquiring a new one which certainly will have a waiting period.

Types of lease

In aircraft financing there are two types of leases—dry and wet. A wet lease means operating lease of aircraft along with insurance, crew, maintenance etc, while a dry lease entails leasing of aircraft without the attached accompaniments. While a wet lease is primarily an operating lease, a dry lease can be an operating or a finance lease. Finance lease typically involve transfer of aircraft to the lessee after completion of the lease term. The lending agencies do a thorough check of the aircraft that is being bought as well as that of the person or company that is going to buy the same. The lender normally performs an appraisal of the aircraft’s value and in case of used aircraft, the lender does a title search based on the aircraft’s registration number as to ensure that there are no liens or title defects. After satisfying the documentation, the lender prepares documentation for transaction which may include a security interest on the aircraft (to repossess the aircraft in case of default).

Leasing of private jets by NSOPs is a good option as it is less capital intensive. The time involved in delivery of leased aircraft is much less than acquiring a new one which certainly will have a waiting period.

There are companies which do hand-holding in aircraft acquisition and that really helps corporate to stay focused on their mainline of business. The corporate has to indicate what kind of aircraft and for what purpose and what kind of usage it is likely to have to these aircraft management companies. Aircraft valuation is a critical element before one goes to the lending institutions. These processes do take time and hence it is suggested that the delivery is planned according to the processing time. Certainly, lending depends on the creditworthiness of the individual or the corporate, as the case may be. The lending institution is going to do its due diligence – on the borrower, the company, the aircraft selling entity and the underlying purchase deal. It will want to see tax returns, financial statements, the purchase agreement, the pre-buy report – all kinds of things.

Debt-servicing

Besides valuation and the amount that you intend to borrow or the route of financing – loan or lease – one of the key components is debt servicing. There are fixed and floating rates of interest with a term and a down payment. So it is essential to do a lot of homework and see how the lending is ‘manageable’.

According to a report, the simple aspect to keep in mind is that a 100 per cent 12-year loan on an 18-year-old aircraft with 25-year amortisation will find few takers, but an 80 per cent five-year loan on a five-year-old aircraft with 10-year amortisation may make good business sense.

GE Capital major player

In India there are several companies which offer these financial services for aircraft purchase. GE Capital is one of the leading providers of corporate aircraft financing. There have been recent media reports that it would sell its fixed-wing corporate aircraft financing business in the Americas to Global Jet Capital, a provider of financing for the private aircraft market. GE Capital provides financing for acquisition of corporate jets, turboprops and helicopters.

With a global portfolio of over 2,000 aircraft and more than $25 billion in transactions around the world, GE Capital is one of the leading providers of corporate aircraft financing. GE Capital India leverages that expertise and the relationships with manufacturers and industry specialists to deliver flexible finance solutions to customers in India. It understands legal and regulatory environments and has access to a worldwide affiliate network to provide best financing solutions. GE Capital India offers loans and leases including pre-delivery payment financing and upgrade financing.

It provides operating leases to finance leases for corporate aircraft to help companies optimise cash flow by managing its balance sheet and cash reserves. Since aircraft is generally owned by the lessor, it is not included on a business balance sheet. This improves debt-to-equity ratios and the business’ overall credit position.

GE Capital states that some of its customers own their aircraft and, in some cases, the asset has built up equity. These customers may be deferring the tax benefits of ownership. Through a sale-leaseback, GE offers its customers the opportunity to sell their aircraft to GE and then immediately lease the aircraft back, maintaining the right to use the asset, allowing the equity tied up in aircraft to be better utilised elsewhere.

GE Capital also offers loans and customers can build equity with every payment. It offers multiple secured loan options, including refinancing. It also makes down payments required by the manufacturer while the customer awaits delivery of the aircraft. GE charges only interest until delivery of aircraft.

Similar to GE, there are few other companies which provide financial services to aviation industry. CAPA ventures is a capital advisory firm which helps clients raising debt or equity funding. It also supports aircraft acquisition and leasing initiatives. CAPA Ventures works with local and international investors, including banks, leading private equity funds, corporate houses and high net worth individuals to identify suitable partners. According to reports, CAPA India was planning to raise proprietary capital with principal investors based in North America and Europe and also to establish a dedicated aviation fund.

Airnetz is another entity which facilitates in getting aircraft loans for new and used aircraft starting at $75,000 in value. It has flexible individual financing programmes with low interest rates, terms up to 20 years, personal service, quick approvals and fast fundings.

All said and done, the buyer has to do as much homework as possible before deciding on the right kind of aircraft, the right kind of financing and the right kind of business model. The aviation industry has a high burnout rate, thus calling for the brave-hearted and those with business acumen.