■ AIRCRAFT FINANCE
Will That Be Cash or Credit?
Financing An Aircraft Can Make Good Fiscal Sense Fushelberger@gmail.com
he decision to borrow money or pay cash for any capital asset, especially when that acquisition is a business aircraft, may seem to be multi-faceted and complex. In actuality, the question is really quite simple − how and where can corporate funds be used to generate the greatest return? Cash always has been, and always will be, king. But not all cash is created equal. Financial institutions commonly operate with the presumption that an accomplished businessperson can generate more revenue on the money he or she invests to grow his or her business versus using those dollars to purchase capital goods, such as new machinery, vehicles, or a business aircraft. Therefore, using these same funds to purchase capital goods, versus other operating or marketing investment opportunities, often may not make the best financial sense. Additionally, regardless of how substantially an aviation asset enhances management and employee productivity, a business aircraft still depreciates, just like machinery or rolling stock. In an alternative scenario, a prospective borrower may have the need for, but not the necessary reserves, to purchase a business 6 B U S I N E S S AV I AT I O N A DV I S O R Ma y/Ju n e 2 0 2 0
aircraft outright. Nevertheless, where there is a strong operating and profit history, the potential exists to demonstrate the loan can be serviced comfortably out of cash flow, and still provide an adequate allowance to cover unexpected events. Also, the existence of other physical assets that can be collateralized to support the loan is usually favorable.
The Basics of Aircraft Financing Remain Unchanged
While memories of the 2008 economic downturn still loom in most loan originators’ minds, the basics of financing a business, or a business aircraft, for the most part remain unaltered. What has changed is that lenders have become much more analytical when evaluating loan applications – and they tend to stay more involved after the loan has been made. Generally, you can count on additional, but not necessarily onerous, lender requests in order to obtain financing. For example, aircraft engines may have to be on hourly cost maintenance support programs (See: “Over and Above,” BAA Jan/Feb 2020), acceptable insurance coverage must be in place, and registration numbers cannot be blocked by flight tracking systems. w w w. B i z AvA d v i s o r. c o m
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BY STEVE FUSHELBERGER
