Financing an aircraft is not to be taken lightly
THE AIRCRAFT FINANCING landscape has shifted over the last two years,
most notably with the lending divisions of OEMs such as Bombardier
either scaling back their operations or packing up and exiting the
field completely.
“The
manufacturer-sponsored capital company is in a trough right now. They
may come back, but if they do it will be in partnership with an
established lender,” said Dan Porter, managing director for CMT
Structured Capital Inc., a Toronto-based company that specializes in
structuring transactions for aircraft in the US$1-million to US$5-
million range.
Even so, there is no shortage of moneylenders or
financing options for customers in the market for new or used corporate
airliners. “There is an excellent range of choices in Canada right
now,” said Benoit Daignault, a senior vice-president of GE Capital
Canada Commercial Finance in Montreal. GE Capital has been involved in
corporate aviation in Canada since 1994, with expertise in all aircraft
types including turboprops.
Lender institutions such as CIT,
Citibank and GE Capital have built up an expertise in corporate
aircraft financing, as opposed to banks which will typically only
finance aircraft on a relationship basis, either by providing an
operating line or loans to an established customer.
Daignault
suggested that even with so many options, the first rule for any
corporation is to do its homework. “There is a lot to financing an
aircraft that is not like financing other pieces of equipment. There is
the cycle of the airplane, and there are tax and accounting
implications that a CFO is not [always] familiar with.”
Indeed,
most CFOs are brought into the loop too late in the game, resulting in
the airplane being unnecessarily planted on the balance sheet. The time
to make decisions about how to finance an airplane should be at the
beginning, with the financial department brought in early.
Not
surprisingly, there is no single aircraft financing solution, although
there are two overarching financing structures: direct buy and lease to
own. From there, the market breaks into a sprawling web of complex
choices.
“Most corporations or investment-driven customers are
looking for sophisticated techniques that are balancesheet friendly,”
Porter pointed out. “On the corporate side where the aircraft is
utilized to move around employees, senior management and customers, a
company would want to keep the asset as a taxdeductible expense. On the
commercial side, a borrower would want to keep the aircraft on its
balance sheet, given the revenue generated by the aircraft, as well as
the accounting benefits derived from their ability to claim
depreciation.”
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