A guide to aviation finance

Leading accountants and financial consultants Price Waterhouse Coopers (PwC) have forecast continued strong demand for aircraft – commercial and private fixed wing versions as well as helicopters.

At the same time, however, PwC also comment on the relative reluctance of British banks to provide the funding for the purchase of such aircraft.

Although the traditional sources of funding by the banks may be in relatively short supply – and look to stay that way for the foreseeable future – there are fortunately other finance providers.

Why you may need aviation finance

There is one overriding reason why you are likely to need aviation finance, whether that is for your own private aircraft or one for commercial operations, and that is the sheer size of the investment required – aeroplanes and helicopters are by no means cheap pieces of machinery.

The availability of aviation finance makes it possible to acquire an aircraft and to do so in circumstances that might otherwise prove impossible – whether this to further your private use of such transport or as a way of pursuing your existing or planned business operations.

Types of finance available

There are a number of aviation finance options available and the one suitable for your particular requirements is likely to depend on just what kind of fixed wing private or commercial plane or helicopter you intend to operate:

Operating lease

  • an operating lease works on the relatively simple and straight forward principle of the lessee effectively renting the aircraft from its owner, the lessor;
  • in return for the rental payments made – over an agreed contract term – the lessee enjoys the exclusive use of the aircraft;
  • the owning lessor relies upon the aircraft having what is known as a “residual” value at the end of the contract, when it may be leased again under a new lease or sold for its residual value;
  • no ownership is transferred to the lessee and the lessor may typically agree to continue maintaining, servicing and repairing the aircraft;
  • as a straight forward rental agreement, through which the lessee enjoys no ownership, there is the potential advantage of your keeping the payments you make for this type of lease to be shown off the balance sheet of your business and instead shown as an operating expense

Aircraft mortgage

  • if your object is to own the aircraft, you might want to consider an aircraft mortgage;
  • this works on the same principles of other mortgages – on your home, for example – where the advance for the purchase of the asset is secured against the vessel itself;
  • although ownership is transferred to you, it is important to remember that if you fail to keep up the mortgage payments, the aircraft itself is at risk and may be repossessed;
  • as with any mortgage loan, the lender is certain to insist on adequate insurance of your aircraft – in an amount equal to at least the amount of the funds advanced.

Why use ACF?

ACF Direct has access to all of these sources of finance and, thanks to its working relationships with more than 40 finance providers, is especially well placed to identify and secure the funding you may need for any kind of aircraft.

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