AIRCRAFT FINANCE at IOB

What is AIRCRAFT FINANCE?

Aircraft finance refers to financing for the purchase and operation of aircraft. Complex aircraft finance shares many characteristics with maritime finance, and to a lesser extent with project finance.

Overview

Aviation provides the only rapid worldwide transportation network, which makes it essential for global business. It generates economic growth, creates jobs, and facilitates international trade and tourism.

Frequently Asked Questions

How does an aircraft loan work?

The monthly payment works just like a mortgage payment, with mostly interest and little principal paid down each month in the first few years. For example, with a 20-year term, if a client makes the minimum monthly payments they’ll gain about 2% equity (principal paid down) in the first year.

Can you finance aircraft?

No different than your smaller purchases – like houses, cars and boats – your traditional aircraft loan can be a fixed rate or a floating rate. Some financial institutions offer hybrids, such as a floating rate loan with the option to buy a “swap.”

What is aircraft financial lease?

In contrast, a finance lease is a long-term lease with an option to purchase the aircraft at the end of the leasing agreement. During the financial lease, the lessee will assume the risks and benefits of ownership, but the lessor retains the legal title.

How do you qualify for plane financing?

At a minimum, you’ll need a 15-20% down payment, plus 18 months of payments in liquid assets and a credit score of no less than 700 to be considered. Just like buying a house, set your budget according to what works with your financial situation before you get your heart set on a particular aircraft.

Should you finance a plane?

Not only can you shop around for the best rate, but you absolutely should! While the interest rates and terms for financing an airplane will be based on the loan amount, other factors can also cause it to vary. These factors include, but are not limited to: Using a bank versus using a specialty lender.

How are private jets financed?

In some cases, you may be able to take out a secured personal loan backed by personal assets that lower the lender’s risk level. Some lenders even specialize in jet financing and offer loans specifically to purchase jets. Take note that jet financing often requires making a minimum down payment of 15% to 20%.

How much do you need to make to own a plane?

This means that a private jet owner will probably need at least $10 million in income per year to afford to become a jet setting jet owner. Moreover, it was noted that the cheapest rate to charter a private jet from New York to Florida was $3,000 an hour – starting from the moment you board.

How do Plane companies make money?

Airlines are in business to make money and even though they may be on the receiving end of government bailouts from time to time, the bulk of their revenue comes from travelers. Aside from the cost of tickets themselves, airlines can also collect fees from passengers that help to add to their profit margins.

How do airlines pay for new aircraft?

As described above for private aircraft, an airline may simply take out a secured or unsecured loan to buy a commercial aircraft. In such large transactions, a syndicate of banks may collectively provide a loan to the borrower.

Is aircraft leasing profitable?

If we imagine that the leasing contract will last for around 20 years, its total value would be around $2.34bn. In that way, GECAS can make a profit by leasing their airplanes, while Qatar Airways manages to reduce its cash expenditures and retain liquidity in its business.

Can you mortgage a jet?

Can I get a loan to buy a private jet? It’s possible, but you’ll need to find a lender willing to let you borrow millions of dollars. Often, your best option is to reach out to a bank that’s familiar with your financial situation and ask if it’s willing to finance your purchase.

How do companies buy airplanes?

Often, leasing companies buy aircraft directly from Airbus and Boeing – at times for particular customers to whom they lease them once the aircraft are delivered.

How long are aircraft leases?

Aircraft leasing contracts, in most cases, can stretch from one up to twenty-five years of length. Airlines must monitor the life cycle costs of such endeavors to avoid future unanticipated financial obligations, keeping their long term profitability and business’ sustainability (Bourjade et at., 2017).

Why do airlines lease their planes?

Airlines lease aircraft from other airlines or leasing companies for two main reasons: to operate aircraft without the financial burden of buying them, and to provide temporary increase in capacity.

Where do airlines buy planes?

So instead, airlines opt to lease their aircraft from an aircraft lessor. In essence, lessors purchase planes from manufacturers like Airbus and Boeing and lease them to airlines for a monthly rental over a fixed period.