What is Commercial Type Aircraft Financing?
Commercial aircraft financing refers to the financing of a commercial aircraft from its purchase to its operation. This type of financing is very complex but it is similar to schemes used by the maritime industry. It also has a few similarities with project financing.
How do airlines finance their commercial planes? Commercial aircrafts are very expensive. Boeing planes for example cost around $69 million but most airlines cannot afford to pay for this making it impossible for them to pay cash for their planes. Although some airlines pay cash on the spot, others rely on export credit guaranteed loans. Some often apply for finance leases or bank loans. All these and a combination of tax leases, EETC, Islamic finance and manufacturer support are just a few of the things airlines can do to support their fleet.
As opposed to owning a private aircraft, commercial aircrafts use debt financing schemes such as secured lending, finance leasing and operating leasing.
Direct lending means an airline may take out a loan from a bank. This can be either a secured or an unsecured one. In case the airline needs a huge amount of money, different banks may band together to provide the money being loaned by the airlines.
Since the cost of operation and purchase of such aircrafts may go up to millions of dollars, airlines usually get a loan that is accompanied by a property interest or a security interest. This gives the banks the power to repossess the aircraft in an event that the airline does not pay its obligations.
Operating leasing on the other hand are short-term leases. These are usually used by startup companies or for those who are eyeing expansion. A popular type of this kind of lease is a wet lease where the aircraft including its crew is part of the lease.
Unlike operating leasing, finance leasing or capital leasing is a long-term arrangement. This is a complicated transaction where partnership maybe involved along with equity financing and debt financing.
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April 29th, 2010 at 3:18 am
Good work.. U have provided pretty good information…