Former NAFA president Chris Miller recently joined Jet Support Services Inc. (JSSI) to launch and lead newly formed JSSI Aviation Capital. Mr. Miller brings 25 years of experience working in the aviation industry to the team. In this feature, Mr. Miller sheds light on how traditional lending has evolved, and the different options that are available to better serve clients such as financing as a partnership with the borrower. Additionally, NAFA Board Member Megha Bhatia, Chief Strategy and Marketing Officer at JSSI and former Rolls-Royce executive, details how financing as a partnership creates value for the borrower.
“With traditional lending, the loan application process is a critical step for a financial institution to assess the credit worthiness of a client and requires credit checks and audited financials. This enables favorable rates but can take time, as the loan is executed against the credit profile of an individual or organization. Additionally, most banks are less likely to participate in loans for aircraft over ~15 years.
The surge in new entrants to our industry over the last few years filled up demand for OEM deliveries and consequently pre-owned aircraft, leading to record low inventory levels and an increased interest in older planes. While we are seeing these trends normalizing, and OEMs increasing production rates to match demand – options to the traditional lending process have developed as a response to the need for speed and ease throughout the financing process, especially for mid-to-older vintage jets.
Specialty asset-based lenders are able to underwrite an aircraft as a whole, providing more flexible financing structures. Since a credit application isn’t required, this is especially helpful for applicants who may not meet the investment profile of traditional lending. The loan is structured differently, against the asset value instead of the credit profile of the owner; this forms a synergistic partnership between the Lessor and Lessee to maintain or even enhance the residual value of the aircraft.”
NAFA Board Member Megha Bhatia, Chief Strategy and Marketing Officer at JSSI, further explains how such partnership can create additional value for the borrower.
“The aircraft ownership journey is standardized, regardless of organization or operation type: from aircraft selection, inspection, and appraisal, to financing, maintenance, and eventually re-sale or disassembly. It is helpful for a new owner to consider each of these steps early in the process, and the value of organizations that specialize in and assist with each.
The Lessor often plays a big role in setting requirements and making recommendations, to maximize the investment on both sides. Performing asset-based lending requires deep aircraft valuation expertise. Such lenders are incentivized to maximize the value of the asset throughout and beyond the loan term, inspiring great thought leadership throughout the process, especially for a new owner entering the industry for the first time.”