Three Guidelines
for Optimizing
Corporate Aircraft
Financing
BY DAVE LABROZZI
Buying or leasing a corporate jet can help businesses operate more efficiently and is sometimes cheaper
than relying on commercial airlines. But to reap those benefits, executives must carefully structure aircraft
financing that suits their company’s near- to medium-term business needs.
DAVE LABROZZI
President, GE Capital,
Corporate Aircraft Finance
A variety of factors must be weighed: Annual utilization, financing rates, the optimum financing term, whether to finance via a loan
or lease, residual value estimates, depreciation rules
and maintenance costs, to name just a few. When it
comes to buying or leasing a corporate jet, the process
is often rigorous. But even executives new to aircraft
financing can keep their deals on track and secure
attractive terms by following three simple guidelines:
Start early, think beyond rates and bring in expertise.
Start Early
Believe it or not, aircraft financing is often delayed
by the buyer until nearly the last minute. Sometimes
it’s virtually an afterthought because executives are
preoccupied with other important details, such as
conducting operational analysis on how the company
will use the plane and studying technical specifications
to select the right aircraft.
The lesson here is that any aircraft financing deal has
a variety of elements that need to be considered —
beyond the interest rate — to create the optimum
financing solution for your company.
But waiting until the 11th hour to line up financing
can have long-term negative consequences. If you don’t
allow adequate time, you may not be able to structure
a package that addresses your specific requirements.
Some executives delay financing details assuming
they will tap an established credit line to finance the
aircraft. But that could be a mistake. By drawing on a
credit line from a primary lender, a company reduces
its access to working capital. On the other hand, by
using an aircraft financing specialist, a company can
tailor a loan or lease and leave its core funding facility
intact.
Think Beyond Rates
It’s natural to want the very best terms possible. For
example, the interest rate, while important, is just one
component of a financing package. Executives should
be careful not to let a few basis points outweigh all
else. For instance, today we’re in an extremely low rate
environment. A five-year financing deal might appear
attractive. However, a ten-year financing term can
provide the flexibility to hold onto the aircraft longer if
rates suddenly increase during the fifth year of ownership. What’s more, it may be possible to apply the
remaining balance of the longer-term lower interest
rate to a subsequent aircraft.
