What’s the problem with financing?
The problem lies in banks’ general lack of enthusiasm for loaning money to “anyone who really needs it to buy an aircraft,” Jeff Wieand writes for the Business Jet Traveler. Wieand notes that banks are performing stricter due diligence, taking a harder look at the aircraft while stretching out the loan-approval process to about eight weeks.
Although most lenders are making credit-based rather than asset-based aircraft loans, they still want an appropriate asset value in case they get stuck with repossessed and off-lease aircraft with depressed values, Wieand reports.
Borrowers considering cash, leasing
But it’s not just the banks holding the market back, Wieand says. Although financing costs are low, so are investment returns. Thus, many buyers who would otherwise finance an aircraft purchase are paying cash, according to Wieand. Some do so because they’re buying an older aircraft, and many banks have official cutoffs for providing debt financing for aircraft more than 20 or even 15 years old.
The alternative to paying cash or borrowing to buy an aircraft is a lease. A lease offers several benefits:
- A lessor takes tax depreciation, which is passed along to a lessee via low payments and lower implicit interest rates.
- In most states, sales tax is paid over the stream of the low monthly payments in lieu of the up-front acquisition cost, yielding a much lower sales tax liability.
- Custom leasing provides flexibility for upgrade and/or early buyout options.
- True operating leases qualify for off-balance-sheet accounting treatment, providing shareholder sensitivity benefits.
- Leases provide 100 percent financing in most cases.
- Experienced corporate aircraft lessors take aggressive residuals that yield residual value protection to a lessee, which has provided significant value to lessees with diminishing aircraft values.
What does loan financing require?
If your company stands at the threshold of truly taking off but needs the boost of a private jet to do so, know that loan financing for the purchase of private aircraft is similar to a mortgage or automobile loan.
A basic transaction for a small personal or corporate aircraft may proceed like this:
- Borrowers provide basic information about themselves and their prospective aircraft to the lender.
- The lender performs an appraisal of the aircraft’s value.
- The lender performs a title search based on the aircraft’s registration number to confirm no liens or title defects are present. In many cases, a title insurance policy is procured to protect against any undetected defects in title.
- The lender then prepares documentation for the transaction:
- In some cases, surety from a third party
- At closing, the loan documentation is executed and funds and title are transferred.
A lender’s resources and costs required to finance a small aircraft and a large aircraft are virtually the same. Therefore, large aircraft should garner more favorable rates as a lender has the opportunity to recoup its costs over a larger dollar volume borrowed. Generally, however, the other provisions of the financing (e.g., advance amount, note term, amortization) will be somewhat consistent for both small and large aircraft.
Both floating and fixed rates are available, and often lenders offer hybrid rate structures. The best interest rate structure for you should be determined by the interest rate climate at your time of closing and how long you plan to own/lease the aircraft. Your aviation lender should be able to offer you insight into the interest rate structure best suited to your specific transaction.
Regardless of how you decide to finance your purchase, count on the experience of a professional aircraft broker to guide you through the entire purchasing process.
Michael Huerta, acting administrator of the Federal Aviation Administration (FAA) spoke at the RTCA Symposium, June 5, 2012, about the status of NextGen implementation.
NextGen, basically, is the movement from World War II-era technology to satellite-based technology for air traffic control. It has many benefits:
- Pilots know precise locations of nearby aircraft.
- More direct flight paths and descents.
In his speech, Huerta explained how successful industry-wide adoption of NextGen depends on collaboration among all aspects of aviation, from airports and air traffic controllers to equipment manufacturers and pilots.
Huerta also discussed four areas of NextGen implementation:
- Metroplex initiatives – Creating new routes to relieve congestion. These initiatives include programs such as Greener Skies in Seattle, which is working to demonstrate that curved a RNP approach is predictable and safe
- DataComm – Integrating communications in an air/ground network
- NextGen metrics – Providing performance data for NextGen initiatives in four areas (safety, capacity, efficiency and environment)
- Equipage incentives – Encouraging aircraft to upgrade to NextGen capabilities
The stages of implementation, which are predicted to take place between 2012 and 2025, are starting now in some of the larger airports in cities including Atlanta, Memphis and Seattle. Ideally, processes will be perfected in local and regional areas and standardized in order to be applied everywhere else.
Time is money, and no one knows that better than the executives of a company with a private jet.
But it’s not just about how fast a jet can transport staff to and from an appointment; it’s also about what they can accomplish en route. From meetings to research to developing client relationships, these airborne offices help executives make the most of their time.
Although saving time is a major focus of a private jet purchase, many companies and individuals waste time when they attempt to shop for and purchase a private jet on their own — or with the help of someone who doesn’t have the knowledge and experience of a jet broker.
Jet brokers:
- Understand clients’ requirements. A jet broker will ask crucial questions that determine the type of aircraft and approach to ownership that will best meet each client’s needs.
- Provide valuable insight. A good jet broker will not push clients into a sale, but will instead provide information that allows clients to determine which aircraft is the most economical and effective choice.
- Provide multiple options. Jet brokers use the breadth of their contacts and expertise to find the right aircraft for each client’s budget and use. They have access to planes that are not on the open market, so even if clients don’t see exactly what they are looking for on a website, they may still be able to procure the make and model they want.
- Give all the details. Jet brokers can provide seating charts, layouts and options for different makes and models of jets they are suggesting, evaluate the potential for renovation or augmentation, and engage purchasers in the buying process.
- Get all the ducks in a row. A jet broker ensures the new jet owner possesses all of the correct paperwork and has the latest maintenance and safety records for the aircraft.
- Extend their service. The best jet brokers have an extensive network of professional service providers to perform maintenance checks on the aircraft chosen, appraise the craft for the lender or insurance agents, and work to ensure that the purchase returns value for the investment. A broker can also connect buyers to professionals who can make changes and upgrades to the aircraft after the purchase.
When purchasing a jet aircraft, find a jet broker who can help you save time long before you make the investment in a plane.
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It is exciting to witness all of the different innovations occurring simultaneously in the world of private jet design. In this blog, we’ve covered the economical HondaJet, the electric hybrid Volta Volare GT4, and the massive double-decker Boeing 747-8 Intercontinental in just the past five months. Fuel efficiency is cool, and who doesn’t want to lie flat when traveling across the ocean? But now it’s time to increase the sexy factor: Speed!
Enter Aerion Corp. with its experimental Supersonic Business Jet (SBJ). This is gonna be cool. According to Bruce Dorminey of Forbes, here are the projected numbers:
- Mach .99 — The jet’s overland speed in the U.S.
- 45,000 feet — The predicted cruising altitude
- 4.25 hours — The length of flight from NYC to Paris
- 148 feet — The length of the Aerion SBJ
- 8-12 — Capacity of the SBJ
- 1/20,000” — The leading edge of the Aerion SBJ wing (Yes, sharp as a knife!)
- 50 — The number of Letters of Intent Aerion already has
- $80 million — The price tag
Of course, testing is still happening, and then Aerion has to partner with a manufacturer. Also, there are plenty of skeptics and the FAA to win over. In any case, Aerion hopes to have SBJs ready for delivery by 2017. Sign me up!
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Purchasing a business jet is no small investment. After a company adds maintenance to the cost, even the occasional repair has a substantial impact on a company’s budget — especially if major repairs are necessary.
A guaranteed maintenance program (GMP) eases that burden and provides assurance that your aircraft is ready to take off at virtually any time.
Why you should look at a GMP
According to Conklin & de Decker’s AIReport, all of the major turbine engine manufacturers offer some form of an engine GMP. Also, a major third-party provider of these plans covers most popular business turbine engines. When you employ a GMP through a provider, you pay into an escrow account to cover future engine maintenance. The GMP provider manages the money and pays the bills.
Here are the reasons the AIReport recommends GMPs:
- GMPs cover scheduled maintenance expenses plus all unscheduled maintenance, such as line checks. Depending on the program options selected, some GMPs also cover rental engines and the removal, re-installation and shipping for the overhaul. Except for negligence and acts of God covered by your insurance, GMPs cover nearly everything.
- Accountants love stability in budgeting, and a GMP offers just that by removing all unplanned costs and surprises in the maintenance of the aircraft engine.
- GMP fees can be a business deduction because the money flows to a third party. Cash that’s simply set aside for future expenses is not deductible and can increase the corporation’s tax liability.
- A GMP also offers insurance against rare but costly unscheduled maintenance events. Although turbine engines are reliable, when an unscheduled event occurs, it can result in significant expenses.
- An engine GMP adds value to the aircraft if you are selling it. For example, if the GMP has accrued $350,000, the accrual adds cash value and reduces risk to the buyer because the engine maintenance costs are covered.
Engine GMPs have several benefits. They are a good way to maintain the value of your aircraft, provide stable budgeting and save money over a pay-as-you-go engine maintenance schedule.
Other services to consider
Depending on the GMP provider and options you choose, aircraft management companies offer a plethora of services. Everything from aircraft repair and maintenance to cleaning, insurance, crew costs and training may be included in a GMP. They may also provide additional services such as:
- discounted parts and labor
- guaranteed aircraft availability from their fleet when yours is in maintenance
- technical audits and inspections
- heavy maintenance and airframe repair
- maintenance predictions and cost modeling
- de-registration/registration process with international authorities
- detailed monthly flight, maintenance tracking and accounting reports
Some companies offer Part 135 aircraft management agreements that allow the provider to charter your aircraft when it is not in use. Such an arrangement lets you earn revenue from your investment and significantly defrays the cost of aircraft ownership with very limited drawbacks.
SpaceX successfully launched Dragon, an unmanned capsule, Tuesday, May 22, 2012, from Cape Canaveral Air Force Station. This event is being heralded as the beginning of a new era of spaceflight. No longer is space the sole playground of government agencies. It’s the dawn of the commercialization and privatization of space travel. This is exciting stuff.
Almost exactly 85 years after Charles Lindbergh, aboard the Spirit of St. Louis, completed the first non-stop transatlantic flight, SpaceX CEO Elon Musk and company held their breath and watched with clenched fists as Falcon9 lifted off with Dragon on its back. So far, so good. The solar arrays and navigational sensors deployed and the GPS equipment is working. Now, Dragon just needs to make it to its $100 billion docking site, the International Space Station.
Once there, the astronauts will unload the 1,014 pounds of cargo:
- Cremated remains of 308 people (The astronauts won’t actually keep these; the canister they’re in will be released and disintegrate upon reentry, sending the remains into eternal celestial suspension.)
If this demonstration mission is successful, then SpaceX will begin fulfillment of a $1.6 billion contract with NASA to deliver goods, and eventually astronauts, to the International Space Station. The revenue sounds awesome, but I think the potential ramifications of this event are much more impressive:
“It is like the advent of the Internet in the mid-1990s when commercial companies entered what was originally a government endeavor. That move dramatically accelerated the pace of advancement and made the Internet accessible to the mass market,” said Musk, SpaceX CEO and chief designer.
Where will the trajectory of aviation innovation point to in another 85 years? Perhaps individual flying pods here on Earth, or new aircraft called “planet-jumpers?”
You’ve just scored a great deal on a private aircraft for your company, and you’ve locked in the financing. You’ve outlined the business case behind the purchase and presented it to your organization’s key players. Now what?
Any company using private air travel benefits from the member services of the National Business Aviation Association (NBAA). The 65-year old organization pursues a mission “to foster an environment that allows business aviation to thrive in the United States and around the world.”
The NBAA seeks to enable the business community to be more productive and profitable through the promotion of private air travel. Through the organization’s efforts, business travelers benefit from improved aircraft and airport safety and from technological advances in both weather reporting and air traffic navigation.
The organization also strives to help members contend with the complex landscape of business aviation, including advice on tax issues, insurance and risk management, and safety compliance.
NBAA supports its 8,000+ members with more than 100 services:
- Legislative advocacy for the business aviation community at the federal, state and local level
- Continuing education and training through the annual NBAA convention, regional seminars and online forums
- Networking opportunities, both in-person and online, that bring the business aviation community together to share advice, opportunities and solutions
- Direct access to leading aviation experts who can explain the complex rules and regulations surrounding the industry’s certifications, equipment and service specifications, and safety issues
- Industry news, perspectives and information through a bi-monthly magazine, eNewsletter, handbooks and more
NBAA annual membership rates are based on company revenue and aircraft size. To learn more about this important resource organization, visit www.nbaa.org.
The European Business Aviation Convention and Exhibition (EBACE) ended yesterday, May 16. The annual event is hosted jointly by the European Business Aviation Association (EBAA) and the National Business Aviation Association (NBAA — the premiere organization dedicated the U.S. business aviation industry).
EBACE by the numbers:
- 60 aircraft at Static Display of Aircraft
Each year, EBACE brings together representatives from all aspects of business aviation — avionics vendors, aircraft companies, governmental entities and business leaders just to name a few. This is an incredible forum for all things related to business aviation. Here are some of the newsworthy announcements from EBACE:
- Cambridge Airport plans to invest $32 million in its facility to encourage business aviation there.
- Greater helicopter presence than ever before.
- EBAA and NBAA leaders spoke out against the European Union’s Emissions Trading System, claiming it is unfair to business aviation.
- Bombardier unveiled two new Learjet models.
If you attended, please tell us what you think the most important event was.
Air travel is exhausting enough without having to move from your seat to manage settings for lighting, audio and more. That’s why products like Select CMS allow private aircraft travelers to control the cabin experience — including lighting, temperature, window shades, galley equipment and more — all from a user-friendly, touch-screen display.
Flight Display Systems, the makers of Select CMS, recently took a big leap into the future with the announcement of its Select CMS Platinum upgraded cabin management system. The most significant improvement in the Platinum product is found in the entertainment controls, which connect wirelessly to an iPad and feature hi-definition Blu-Ray video and audio controls.
Each Select CMS system is fully customizable and installs easily on smaller prop-planes as well as wide-body jets. The system also features Remote Support Access to identify and troubleshoot technical issues from the ground.
Flight Display Systems launched in 2001 with the popular Flight Display Moving Map, an in-flight graphic map that displays altitude, air speed and distance. Today, Flight Display Systems’ products are installed on private planes used by presidents, CEOs and dignitaries around the world. The company also produces video components used by the military for surveillance and reconnaissance functions.
For information about Select CMS and videos featuring the company’s products, visit www.selectcms.com.
The safest in the world. So safe that people take it for granted. When was the last time you saw someone actually paying attention to the flight attendants’ safety demonstration before takeoff? And the flight crew certainly makes sure your seat is in the upright position and your smartphone is turned off during landings.
So what about this letter from the Office of Special Counsel to the White House? It was released May 8 and describes a “pattern of failure” by the Federal Aviation Administration (FAA) and the Transportation Department to respond to whistleblowers’ allegations. Some of these accusations seem pretty serious:
- Controllers sleeping, watching movies and leaving early while on duty
- Improper fuel tank maintenance and wiring by a major airline
- FAA guidelines failure to guarantee safe separation for landing at Detroit Metropolitan Wayne County Airport
- Jets flying too close to each other in busy airports (Newark Liberty International Airport)
In fact, the special counselor’s office has received 178 disclosures, 87 of them safety-related, since 2007. Apparently, more disturbing than the safety allegations themselves is the slow response from the FAA to correct the problems.
Safety first, right? We wrote in our newsletter last August about how safe private jet travel is —even safer than commercial flights. You can read that here.
