Leasing & Lending Solutions for Private Aircraft

A BUYERS GUIDE TO
BUSINESS AVIATION
AIRCRAFT FINANCING
Traditional loan financing and leasing represent two different ways that a business
or private citizen can acquire a jet to be used for personal transportation, and
avoid flying on commercial airlines. There are advantages and disadvantages to all
strategies for aircraft acquisition, and these frequently have significant economic
components, so any individual considering some kind of aircraft purchase or lease
would be well-advised to understand the issues related to both.

01

LEASING VS. PURCHASING

One of the most important things to consider when
contemplating leasing or purchasing an aircraft is
the expected level of usage during a given year.
If usage is expected to be below the threshold of
between 250 and 350 hours per year, ownership
probably is not the most advantageous option, and
leasing might be more economically beneficial.
Purchasing an aircraft can be very advantageous,
if after all payments have been made, the aircraft
is then sold for profit, especially since the owner
will have enjoyed the use of the jet during that
period. Considerable tax advantages accrue to
the owner as well, since it is an asset that can be
depreciated at a set rate every tax year. Some of
the disadvantages of ownership are that significant
capital is tied up in the aircraft as equity and
resale values can fluctuate widely depending on
prevailing economic conditions.
Leasing an aircraft has some distinct advantages,
since it generally involves a low initial payment,
and at the end of the lease period the lessee can
simply walk away from the agreement, or continue
it at his discretion. Having the option to either
return, upgrade or renew your aircraft lease at
the end of the agreement allows you to void
the changing costs of maintenance, upkeep
and

technological

advances

as

your

private jet depreciates in value over time

and replacement parts become harder
to find or discontinued altogether.

02

OUTRIGHT
OWNERSHIP
CAN BE
AN IDEAL
SCENARIO
FOR A
COMPANY.

OWNERSHIP
FINANCING
OPTIONS
The three basic financing options available
in the market to would-be aircraft owners
are outright ownership, aircraft loans, and
operating leases. Outright ownership can
be an ideal scenario for a company if it
has the cash to purchase an aircraft via a
one-time cash payment which immediately
transfers ownership to the company, and
gives it full rights for usage or leasing to
other parties.
An aircraft loan involves borrowing money
from banks or other lenders in order to
make an aircraft purchase, and typically
includes a loan agreement, promissory
note, and a security agreement. Together
these three components outline the terms
of the loan, the interest rates, a promise to
repay the borrowed amount with interest,
and a grant to the lender of a security
interest in the aircraft.

03

LEASING OPPORTUNITIES

The three different kinds of leases are

as

operating

leases,

financing

or capital leases, and synthetic leases.

The most popular leasing arrangement is
the operating lease, in which the lessee
acquires possession of the aircraft for the
leasing period, while the lessor remains
its actual owner.
The financing lease includes an option for
the lessee to own the aircraft outright at
the end of the leasing period, assuming
all payments are made promptly and in
full, so in this scenario the financing lease
basically becomes a purchase installment
agreement.
incorporates

The

synthetic

elements

of

agreement
both

these

leasing types, in that it is fundamentally

an

operating

lease,

but

is

structured

in s uch a way as to be considered an

expense on the income statement, rather
than a liability on the balance sheet.

THE MOST
POPULAR
IS THE
OPERATING
LEASE.

known

04

RETURN ON INVESTMENT (ROI)

Companies that require a return on investment for all cash
dollars spent are generally looking to have money coming in
as a return for any cash investment, and this can even include
the purchase of an aircraft. One way to set up this kind of financial
scenario is to hire out the aircraft for us e by third parties when it is
not in use servicing the primary owner(s).
Aircraft management companies exist which offer this service, since
it is a common scenario among owners looking to recoup costs during
otherwise idle time for an aircraft. With active management, an aircraft
might be offered to other users during most of its idle time, thus generating
considerable cash income for owners, and helping to defray a portion of the
cost of operation and monthly payments.

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