Aircraft financing refers to financing for aircraft purchases and operations. Complex airfreight finance (like the schemes used by airlines) has many characteristics with maritime finance, and to a lesser extent with project financing.
Video Aircraft finance
Private plane
Financing for the purchase of private aircraft is similar to a mortgage or car loan. The basic transactions for private aircraft or small companies can be processed as follows:
- The borrower provides basic information about themselves and their candidate plane to the creditor.
- The giver conducts the aircraft value assessment.
- The grantor performs a title search based on the aircraft registration number, to ensure that no lien or title defects are present. In many cases, a title insurance policy is provided to protect against any undetected defects in the title.
- The lender then prepares the documentation for the transaction:
- The security agreement, which sets security interests on the aircraft, so that the creditor can retrieve it in case of default on the loan
- Promissory note, which makes the borrower liable for any outstanding loan not covered by aircraft repossessment
- If the borrower is deemed less credit worthy, a guarantee from a third party (or from some third party)
- Upon closing, the loan documentation is executed, then funds and titles are transferred.
Maps Aircraft finance
Commercial planes
Plane is expensive. A Boeing 737-700, a Southwest or Ryanair type of use, is priced in 2008 USD in the range of $ 58.5-69.5 million (although very few airlines actually pay this much). Airlines typically have low margins so very few airlines can afford to pay cash for all their fleets.
Commercial aircraft, such as those operated by airlines, use more sophisticated financing leases and debt financing schemes. The three most common schemes to finance commercial aircraft are secured loans , leasing operations and rental financing . However, there are other ways to pay for airplanes:
- Cash
- Lease and sales/leasebacks operations
- Bank loans/finance leases
- Export credit credit credit
- Tax lease
- Manufacturer support
- EETC
This scheme is primarily distinguished by tax and accounting considerations, particularly tax deductions, interest and operating costs that can reduce tax liabilities for operators, lessors and financiers.
In May 2016, the lessor had a 42% market share. That increased until 2008 but has since stagnated, and should continue so if not for rate hikes, slowing airline profits, increasing share of lessors' from new aircraft shipments, and market liberalization. Lessors can also increase their market share by incorporating more new airlines, more recycling of older aircraft, changing views about residual values, and lower returns.
Direct borrowing
As described above for private aircraft, an airline can only take secured or unsecured loans to purchase commercial aircraft. In such large transactions, syndicate the bank may collectively lend to the borrower.
Since the cost of commercial aircraft may be hundreds of millions of dollars, most direct loans for aircraft purchases are accompanied by security interests on aircraft, so that aircraft can be taken over in case of inability to pay. Generally it is very difficult for borrowers to obtain affordable (unsecured) private financing from purchases of aircraft, unless the borrower is considered to be highly creditworthy (eg operators established with high equity and stable cash flow). However, certain governments finance exports of domestically produced aircraft through the Understanding of the Large Aircraft Sector (LASU). This interstate agreement provides to finance the purchase of aircraft at 120 to 175 points above the primary interest rate for a period of 10 to 12 years, and the option to "lock" interest rates up to three months before taking out a loan. These terms are often less attractive to larger operators, who can get less expensive planes through other financing methods.
By directly owning their aircraft, airlines may deduct depreciation expenses for tax purposes, or deploy depreciation charges to increase their profits. For example, in 1992, Lufthansa adjusted its books to depreciate aircraft over 12 years, not 10 years; the decrease in the resulting depreciation cost "caused" the company's reported earnings increased by DM392 million. JAL made a similar adjustment in 1993, causing the company's profit to increase by  ¥ 29.6 million.
On the other hand, prior to the emergence of commercial aircraft leasing in the 1980s, privately owned airlines were particularly vulnerable to market fluctuations due to their need to assume high debt levels to purchase new equipment; rent offers additional flexibility in this area, and has made airlines less sensitive to fluctuations in costs and revenues, although some sensitivity still exists.
Leasing operation
Commercial aircraft are often leased through Commercial Aircraft and Leasing (CASL) companies, the two largest companies are International Lease Finance Corporation (ILFC) and GE Commercial Aviation Services (GECAS).
Operating leases are generally short-term (less than 10 years in duration), making them attractive when aircraft are required to start a business, or for tentative expansion of established airlines. The short duration of operating leases also protects against aircraft obsolescence, an important consideration in many countries due to changes in noise and environmental laws. In some countries where airlines may be considered less credit worthy (eg the Soviet Union), operating leases may be the only way for airlines to acquire planes. In addition, it gives airlines flexibility so they can manage the size and composition of the fleet as much as possible, expand and contract to match demand.
Conversely, the value of the remaining aircraft at the end of the lease is an important consideration for the owner. The owner may request that the aircraft be returned in the same condition of maintenance (eg, post-C check) when shipped, thereby speeding up the process to the next operator. Like rent in other fields, security deposit is often required.
One type of operating lease is wet rental , where the aircraft is rented along with its crew. Such rentals are generally short-term to cover a surge in demand, such as Haj pilgrimage. Unlike chartered flights, wet-leased aircraft operate as part of a leasing carrier fleet and with the carrier's code, although it often retains the livery of its owner.
The US and UK accounting rules differ on operating leases. In the UK, some operating lease expenses can be capitalized on the company's balance sheet; In the US, operating lease fees are generally reported as operating costs, equal to fuel or wages.
Concepts related to operating leases are leaseback, where the operator sells his or her own aircraft for cash, and then rents the same plane from the buyer for regular payments. Operating leases can provide flexibility for airlines to change the size of their fleets, and create a burden for leasing companies.
Lease financing
Lease financing, also known as "capital leasing", is a long-term arrangement in which operators come closer to effectively "owning" aircraft. This involves more complicated transactions in which the lessor, often a special-purpose company (SPC) or partnership, buys a plane through a combination of debt and equity financing, and then leases it to the operator. The operator may have the option to purchase the aircraft at the expiry of the lease term, or may automatically receive the aircraft upon expiry of the lease term.
Under the American and English accounting rules, finance leases are generally defined as one where the lessor receives substantially all property rights, or where the present value of the minimum lease payments over the lease term exceeds 90% of a fair market. plane value. If the lease is defined as a finance lease, it should be calculated as a company asset, in contrast to operating leases that affect only the company's cash flow.
Financial leases appeal to the lessee because the lessee can claim a depreciation deduction for the useful life of the aircraft, which offsets the profitability of the rent for tax purposes, and deducts the interest paid to the creditors who finance the purchase. This has made the aircraft a popular form of tax shelter for investors, and has also made financing to rent cheaper alternatives for hiring operations or secure purchases.
Various forms of financial leasing include:
- Equipment trust certificate (ETC): Most commonly used in North America. Investor trust buys plane and then "leases" to the operator, provided that the airline will receive the title for the full performance of the lease. ETCs blur the line between finance leases and secured loans, and in their latest form have begun to resemble securitization arrangements.
- Extended lease operations : Although the EOL resembles a finance lease, the lessee generally has the option to terminate the lease at a specified point (eg every three years); thus, rent can also be conceptualized as operating lease. Whether EOLs qualify as operating leases depends on the time of termination rights and accounting rules applicable to the company.
- US leveraged lease : Used by foreign airlines importing aircraft from the United States. Under US lease, Foreign Corporations (FSC) purchases and aircraft lease, and tax-free for at least 50% of aircraft made in the US, and at least 50% of its flight miles are flown outside the US. Due to the extensive documentation required for this lease, they are only used for very expensive aircraft operated entirely outside the US, such as Boeing 747 purchased for domestic routes in Japan.
- Japanese leveraged lease : The JLL requires the establishment of a special-purpose company to acquire the aircraft, and at least 20% of the equity in the company must be held by a Japanese citizen. The wide-bodied aircraft was chartered for 12 years, while the narrow aircraft was leased for 10 years. Under the JLL, airlines receive tax breaks in their home country, and Japanese investors are exempt from taxes on their investments. JLL was encouraged in the early 1990s as a form of re-export currency generated by Japan's trade surplus.
- Hong Kong leveraged lease : In Hong Kong, where income taxes are low compared to other countries, lever leasing to local carriers is common. In such transactions, locally incorporated lessors acquire aircraft through a combination of non-recourse debt, recourse debt, and equity (generally in proportion 49-16-35), and thus can claim depreciation allowances even though they are solely responsible for half of purchase price. Its high tax liability can then be set against the profit from aircraft leasing to local airlines. Because of local tax laws, this investment is defined as a general partnership, in which investor liabilities are primarily limited by insurance and contracts with operators.
Lease corporate trust
Some US banks hold the plane "in confidence" to protect the true "owner" privacy of the aircraft or to "secure the registration of US aircraft for non-US companies and individuals."
See also
- Options (airplane purchase)
References
Source of the article : Wikipedia
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