Global Jet Capital

  • Tracey Cheek posted an article
    What are the Aircraft Financing Trends in 2019? see more

    NAFA members Martin Ormon, President of Aircraft Finance Corporation, and Dave Labrozzi, Chief Operating Officer of Global Jet Capital, talk with freelance writer Rohit Jaggi about the condition of the aircraft financing market.

    What's the condition of the aircraft financing market? 

    Who is seeking aircraft financing in 2019, and how are they obtaining it? Have the financing trends changed - and what's the outlook going forwards? Rohit Jaggi gets insights from financiers Dave Labrozzi and Martin Ormon.

    Business jet sales tend to follow the money. And the US economy performed unexpectedly well in the early months of 2019. Yet Business Aviation growth is slowing, in the US and the rest of the world, and business jet sales are being hit by a number of factors.

    Sales of new and used jets saw an uptick in 2018 as US tax cuts and changes in the rules on accounting for airplanes took effect. Increasing demand and steadier prices for used jets also signalled the return of some big banks and financiers to the sector, after having their fingers burnt following the financial crisis of 2008.

    But does that mean financing private jets is becoming easier for buyers? And are specialist lenders being frozen out by competition from the big players? Two companies that play to their strengths in different parts of the business jet financing market illustrated the challenges.

    Dave Labrozzi is chief operating officer of Global Jet Capital, which focuses on aircraft aged 15 years and younger.  He says that the big finance corporations are focusing on their high-net-worth clients and the biggest corporate names, but their interest flags when it comes to complicated deals, or anything other than loans secured on the value of the aircraft.

    Martin Ormon, whose Aircraft Finance Corporation services a US market for older aircraft with loans of $1m to $7m, is more scathing. “[The big bank lenders] believe their model is the best model – and it puts a noose around the customer’s neck.

    “They still want to make it an asset-based loan. An aircraft is not an asset – it depreciates from the second you step in the door and fire the engines up. Far more so than an automobile.”

    Playing to Strengths

    Ormon’s niche is credit-based, 20-year loans that keep the cost of payments down and are based on the customer’s ability to pay. Offering the example of a customer for whom he refinanced a loan on a Bombardier Challenger 605, Ormon reveals the customer had been paying a bank $70k a month.

    “With us that became $29k a month,” he illustrates. “Who is going to default first? A guy with a $29k monthly payment, or a guy with a $70k monthly payment?”

    It’s also true that those who don’t really need to borrow can do so more easily. “The high-net-worth individuals we do business with can dig into their pockets for the $50m-$60m cost of a jet,” says Labrozzi.

    “But they don’t – they prefer to put their money into their business and get double-digit returns.” The leasing deals Global Jet Capital can put together allow them to do that and have a jet.

    What’s Different About Today’s Aircraft Financing Market?

    Labrozzi is confident that there is not too much froth in the market. That was part of what happened after the financial crisis where lenders were spooked by falling asset prices into calling in their loans.

    That helped produce a cycle of further price deterioration and an increasing number of repossessions. “I don’t see that perfect storm,” says Labrozzi. “What is different this time is that the major manufacturers are building significantly fewer airplanes.” And that should help maintain values.

    But another factor helps here: A shortage of high-quality used/pre-owned jets. “Low-hour, clean airplanes are hard to find,” Ormon notes. “In the pre-owned jet market the products are not as high-quality as they were just a couple of years ago. The really great airplanes are out there, but they’re hard to find.”

    Was the US Tax Cuts Impact on Aircraft Sales Limited?

    A natural question is whether the effects of the US tax cuts and accounting changes, signed into law at the end of 2017, have already fed through?

    “The tax law change did give the industry a shot in the arm,” says Labrozzi. But it wasn’t the benefit that many thought: “People bought a jet before the end of the tax year, but then found it was a lot more difficult to deploy the tax benefits.”

    As a result Global Jet Capital has done a lot of sale and leaseback deals, because, as a leasing specialist that turns over a lot of aircraft, it can utilise the full tax benefits. “The bottom line is that it’s helped our business,” Labrozzi says.

    According to Ormon the buying ability of his customers and potential customers has not been significantly dented.

    “These guys are buying Hawker 850 for $16k a month. They’re putting $400k down. Sure, you could pay first class for $16k a month, probably non-stop around the world, but that’s not their mentality. Our clients have the cashflow, they’ve got the cash, and that’s what they want to do.

    “So – with $200k a year in payments and another $700k a year to maintain the airplane and fly it (pilots and everything) – that’s less than $1m a year to own a Hawker.”

    Looking Ahead for Aircraft Financing

    Global Jet Capital’s Q1 2019 market briefing points to trade tensions and fears of market volatility, but sees demand for new business aircraft rising at the same time as a shortage of high-quality used jets impacts the number of used aircraft sales.

    Labrozzi expects a steady market over the next couple of years. His customers are responding to economic and trade uncertainty by putting the tools in place they need to do business (including private aircraft).

    He also believes that the sector is in a trade-up replacement cycle. “A lot of my customers are getting ready to take delivery of an airplane they ordered two years ago and it’s time to move their existing airplane,” he says.

    Moreover, some highly desirable airplanes (such as the Dassault Falcon 7X) were undervalued recently when there were a lot on the market. Now the market is absorbing them quickly, Labrozzi says – they are likely to be on the market for only an average of six months.

    Ormon paints a slightly different picture. “I’d say that lending is down 15%. The aircraft sales are there – there are a lot of people paying cash for $2m and $3m airplanes, because interest rates have been low for a while and companies have just received a tax cut. Companies are awash with cash that they are not necessarily putting back into the business.”

    So the number of deals Ormon is doing is down. “Our biggest year, 2017, was 56 deals, with an average value of about $3.2m,” he says. “Our 2018 average was $2.9m, and today we’re probably doing around 35-40 deals a year. I don’t see anything changing unless we have a major financial crisis. I think this is the new norm.

    “The outlook for my sort of financing is good,” Ormon concludes. “The Hawker 800 is becoming a thing of the past and now we’re getting [better-quality] Hawker 850s and 900s that are in that price range.”

    Labrozzi is also optimistic. “There’s always plenty of business to go around,” he concludes. “I just want to get my unfair share of it…”

    More information from www.aircraftbanker.com or www.globaljetcapital.com

    This article was originally published by freelance writer Rohit Jaggi in AvBuyer on June 5, 2019.

     

  • Tracey Cheek posted an article
    Financing: Which Aircraft are Most Likely to Qualify? see more

    NAFA member Vivek Kaushal, Chief Risk Officer with Global Jet Capital, discusses financing tips on ways to maximize your chances when selecting your next aircraft.

    Is the goal of getting financing for a used aircraft really so difficult in today’s Business Aviation marketplace? Global Jet Capital’s Vivek Kaushal discusses, offering tips on ways to maximize your chances when selecting your next aircraft…
     

    If you’re thinking about financing an aircraft, you’ve probably heard that it’s relatively easy to obtain funds for a new aircraft but that financing used jets is a thornier proposition.

    That’s mostly true, but even for a new aircraft, there is no guarantee of securing funding. It’s important to remember that not all new aircraft are created equal. Lenders will always wait for a new model to prove its performance and demonstrate some trading history before going ‘all-in’.

    Existing models with a solid installed base and performance history are usually acceptable, with a few exceptions.

    While it’s mostly true that financing for new aircraft can be more easily obtained than for used, within the used realm there’s significant variation in what lenders look for and what kinds of risk they’ll tolerate. Generally speaking, a used aircraft can indeed be trickier to finance.

    Some lenders, especially those that don’t specialize in aviation financing, won’t finance aircraft over five years old, while for others, ten years is the cut-off.

    These are largely arbitrary numbers, and experienced aviation lenders know that there are more important considerations than arithmetic based on model year.

    Useful or not, some banks rely on these simple weeding-out measures because they’re constrained by conservative credit risk policies or by a lack of knowledge. Neither is conducive to a holistic approach to used aircraft financing.

    Thus, if you’ve got your eye on a used aircraft that’s got a little more history between its wings than some lenders are comfortable with, don’t despair. Older aircraft can qualify for financing, but obtaining it would typically mean engaging a specialized aviation financing partner who can work with you and navigate some of the industry particulars.

    Following are three major factors that will make a difference as to whether a specific used aircraft qualifies for financing or not…
     

    1. A Robust Installed Base/Model Performance History

    The more performance history that’s available for an aircraft model, the better. Models that have been well-accepted in the market will almost always be more likely to qualify for financing.

    For each cabin class, some models demonstrate better-than-usual value retention. These will typically have been in production at a high volume and will boast a well-documented operational and financial track record.

    Models with short production runs and low trading volume may be viewed more cautiously as collateral for financing.

    Data on a model’s installed base and recent trading history (number of pre-owned aircraft on the market/average days to trade) is typically available on AMSTAT or JETNET.
     

    2. Fleet Average Usage Levels

    An aircraft is more likely to qualify for financing if it’s at or below fleet average usage for its make and model. Bluebook and other guides can provide this information, which is a key indicator of how much service life an aircraft has left.

    If the aircraft’s usage level is significantly higher than average, lenders may get concerned about the aircraft’s remaining useful life because of heavy usage. A heavily used aircraft will tend to sell more slowly.
     

    3. Airworthiness is Non-Negotiable - Maintenance Status Matters

    To qualify for financing, an aircraft must be in very good operational condition with no history of material damage. Damage to the aircraft will be assumed to affect its reliability and value, regardless of how comprehensive the repairs. All avionics have to be up to date, with no doubt over airworthiness. All technical upgrades must be in place as well.

    One major maintenance-related consideration that may affect a lender’s decision is whether the engine is cared for under a power-by-the-hour (PBH) program or not. Most lenders consider PBH programs to be a favorable approach to mitigate the risk of expensive engine repair costs.

    Another consideration is when the next major inspection is going to take place. An airframe inspection can be expensive and take a significant amount of time. A thorough review of the aircraft’s logs and maintenance history will help to flag such issues.
     

    The Real Issue With Used Aircraft Financing

    In a nutshell, the main obstacle to financing used aircraft is the complexity of the deals themselves. Some lenders struggle with the complex considerations that go into evaluating the risk of financing a used aircraft, especially if they don’t have robust aviation knowledge.

    Those that rely on a simple exclusionary process may rule out perfectly airworthy and viable aircraft in favor of preserving a cautious risk posture. All too often, a traditional lender will ask for other forms of collateral, such as significant amounts of assets under management which it has a right of set off, rather than rely on the value of the asset or the credit of the borrower’s business.

    Someone with domain knowledge can engage with the industry’s complexity and structure a transaction that works for the aircraft, even helping clients navigate the inspection process.

    As an example, Global Jet Capital was about to close on financing an operating lease for a ten-year old Bombardier Challenger 605 when a problem was identified with the aircraft’s APU requiring it to be sent to Honeywell for an estimated eight-week repair.

    A lender unfamiliar with aviation might have considered this a “red flag,” and its policies may have also precluded it from holding its financing commitment for that length of time, leading to an end to the deal and possibly a lost deposit if the right contingencies weren’t in place.

    Instead, our understanding of the space meant we understood the need for the repair and were able to work through the delay seamlessly. Once the overhauled APU was installed, the deal closed successfully.
     

    In Summary…

    So which jets are most likely to qualify for aircraft finance? A lot is possible when you find the right partner for your Business Aviation financing and understand what matters to lenders.

    Used aircraft continue to represent terrific value for savvy buyers. Keeping in mind the three major considerations relating to a used aircraft’s finance-worthiness, you should be able to find a used aircraft that suits your business goals and save yourself the disappointment of a rejection.

    More information from www.globaljetcapital.com

    This article was originally published in AvBuyer on May 4, 2018.

     

     

  • Tracey Cheek posted an article
    What to Ask When Your Aircraft Lease is Expiring see more

    NAFA member, Steve Day, Head of Sales - Americas with Global Jet Capital, discusses the questions you should be asking when your aircraft lease is expiring.

    Your aircraft lease arrangement is coming to an end and decisions need to be made on what to do next. What are the questions you need to be asking? 


    1. Should I stay in my current aircraft?

    If you like your aircraft and it continues to fit into your business goals, it may be very easy to extend your lease to retain the same plane.

    The advantages of sticking with your current aircraft are obvious including retaining the same staff and (likely) the same hangar space, no need for additional certifications, and no new maintenance requirements—the list goes on.

    Not only that, you’ll probably be looking at minimal, if any, additional capital outlay as you move into the extended agreement. You may even be able to roll in some additional upgrades and improvements.

    That adds to the peace of mind you’ll have when you stay with something that’s been working well for you.

    A lease extension can also be a useful stop-gap measure if you’re not ready to transition. If you don’t have a plan in place or things are in a state of flux, a lease extension can help you find time to regroup.

    Let’s assume you want to move into a new aircraft, but the model you want won’t be available until a year after your lease expires. A flexible financing partner will work with you to create terms that will accommodate your timeframe and move you into the new lease seamlessly.


    2. How does my transition plan fit into my business goals?

    Perhaps recent tax changes have made you take a closer look at your approach to aviation. Perhaps your current aircraft is no longer meeting your needs. Perhaps you’re expanding into new jurisdictions. There’s certainly no guarantee that your aircraft needs will be identical to what they were when you first signed a lease that’s due to expire soon. But change is rarely a simple proposition.

    Larger aircraft don’t just come with a higher price tag—they also come with different operator certification requirements, maintenance needs, more expensive insurance and higher costs for hangar space.

    Together, those new requirements can be a larger-than-estimated drain on cash flow and time.

    Smaller aircraft, while typically less expensive, can create their own logistical struggles. Even changing where you’ll be keeping your aircraft can be a minefield. A holistic and proactive approach to transition goes a long way towards preventing budgetary surprises, and experienced operating lease providers can be a big help during this process.


    3. Do I have a conceptual transition plan?

    If the answer isn’t yes, you may be in for some turbulence. To leverage the flexibility advantages of leasing, a proactive approach to transition is key. If you don’t start planning early, especially if the aircraft you’re considering could take more than a year to deliver, you might be setting yourself up for problems as the end of the term draws near.

    In the best case scenario, a prepared lessee can move from one aircraft into another with minimal issue and little to no overlap or gaps in lease terms.

    In the worst case scenario, an unprepared lessee can find him or herself without an aircraft due to production availability of new aircraft, or difficulty finding the right plane—which can create huge logistical problems.

    Alternatively, the unprepared lessee might find him or herself paying for, maintaining and managing two aircraft at once while the initial contract wraps up.

    That’s why it’s generally a good idea to start making your transition plan 18 months before the end of the lease if you’re planning on leasing a new aircraft. If you’re planning on leasing a used aircraft, 6-12 months should be sufficient.

     

    4. What obligations will I be responsible for as I move out of this lease?

    Most lease obligations aren’t solely financial or limited to regular lease payments. Obligations to manage, insure, maintain and store the aircraft you’re leasing are important components of lease agreements, and can be a large component of the overall expenses.

    In addition, the return conditions specified in the lease will come with its own obligations – specifically written to protect the expected value of the returned asset.

    If you’re unprepared, you might find yourself blindsided, or underbudgeted as the lease term ends.

    You’ll find that an experienced lessor should be flexible in order to maintain an ongoing relationship, even if it’s a pre-expiration move into a different aircraft. In such cases, it’s usually possible to amend or extend the existing contract as necessary.

    Early termination accommodations also exist, and they don’t necessarily have to come with a hefty penalty. Speak directly with your lessor and clearly articulate your needs and concerns as you plan your transition to find out what may be possible for you.
     

    5. What kind of obligations am I getting into if I transition to a new lease?

    Not all contracts are created equal. Depending on the experience of the lessor and how the agreement is structured, your obligations may be reasonable—or they may be draconian. Lessors that are focused on the corporate aviation market, typically take the time to fully understand their customer’s needs.

    They manage their business models with a long-term view. They’re much more likely to structure transactions that are truly win/win agreements.

    Both financial and non-financial obligations (maintenance, operation, etc.) affect the expenses, so it’s important to fully understand what you’re in for with a new lease and plan accordingly.

    If you’re looking for a flexible operating lease that meets your requirements with minimal bureaucracy, you’ll likely want to consider a partner that has the expertise and market presence that cultivates customized solutions for its clients.

    For more information, visit Global Jet Capital.

    This article was originally published on AvBuyer on May 9, 2018.

  • Tracey Cheek posted an article
    What to Ask When Your Aircraft Lease is Expiring see more

    NAFA member, Steve Day, with Global Jet Capital, offers insights on what questions you should ask when your aircraft lease arrangement is coming to an end.  

    1. Should I stay in my current aircraft?

    If you like your aircraft and it continues to fit into your business goals, it may be very easy to extend your lease to retain the same plane.

    The advantages of sticking with your current aircraft are obvious including retaining the same staff and (likely) the same hangar space, no need for additional certifications, and no new maintenance requirements—the list goes on.

    Not only that, you’ll probably be looking at minimal, if any, additional capital outlay as you move into the extended agreement. You may even be able to roll in some additional upgrades and improvements.

    That adds to the peace of mind you’ll have when you stay with something that’s been working well for you.

    A lease extension can also be a useful stop-gap measure if you’re not ready to transition. If you don’t have a plan in place or things are in a state of flux, a lease extension can help you find time to regroup.

    Let’s assume you want to move into a new aircraft, but the model you want won’t be available until a year after your lease expires. A flexible financing partner will work with you to create terms that will accommodate your timeframe and move you into the new lease seamlessly.


    2. How does my transition plan fit into my business goals?

    Perhaps recent tax changes have made you take a closer look at your approach to aviation. Perhaps your current aircraft is no longer meeting your needs. Perhaps you’re expanding into new jurisdictions. There’s certainly no guarantee that your aircraft needs will be identical to what they were when you first signed a lease that’s due to expire soon. But change is rarely a simple proposition.

    Larger aircraft don’t just come with a higher price tag—they also come with different operator certification requirements, maintenance needs, more expensive insurance and higher costs for hangar space.

    Together, those new requirements can be a larger-than-estimated drain on cash flow and time.

    Smaller aircraft, while typically less expensive, can create their own logistical struggles. Even changing where you’ll be keeping your aircraft can be a minefield. A holistic and proactive approach to transition goes a long way towards preventing budgetary surprises, and experienced operating lease providers can be a big help during this process.


    3. Do I have a conceptual transition plan?

    If the answer isn’t yes, you may be in for some turbulence. To leverage the flexibility advantages of leasing, a proactive approach to transition is key. If you don’t start planning early, especially if the aircraft you’re considering could take more than a year to deliver, you might be setting yourself up for problems as the end of the term draws near.

    In the best case scenario, a prepared lessee can move from one aircraft into another with minimal issue and little to no overlap or gaps in lease terms.

    In the worst case scenario, an unprepared lessee can find him or herself without an aircraft due to production availability of new aircraft, or difficulty finding the right plane—which can create huge logistical problems.

    Alternatively, the unprepared lessee might find him or herself paying for, maintaining and managing two aircraft at once while the initial contract wraps up.

    That’s why it’s generally a good idea to start making your transition plan 18 months before the end of the lease if you’re planning on leasing a new aircraft. If you’re planning on leasing a used aircraft, 6-12 months should be sufficient.

     

    4. What obligations will I be responsible for as I move out of this lease?

    Most lease obligations aren’t solely financial or limited to regular lease payments. Obligations to manage, insure, maintain and store the aircraft you’re leasing are important components of lease agreements, and can be a large component of the overall expenses.

    In addition, the return conditions specified in the lease will come with its own obligations – specifically written to protect the expected value of the returned asset.

    If you’re unprepared, you might find yourself blindsided, or underbudgeted as the lease term ends.

    You’ll find that an experienced lessor should be flexible in order to maintain an ongoing relationship, even if it’s a pre-expiration move into a different aircraft. In such cases, it’s usually possible to amend or extend the existing contract as necessary.

    Early termination accommodations also exist, and they don’t necessarily have to come with a hefty penalty. Speak directly with your lessor and clearly articulate your needs and concerns as you plan your transition to find out what may be possible for you.
     

    5. What kind of obligations am I getting into if I transition to a new lease?

    Not all contracts are created equal. Depending on the experience of the lessor and how the agreement is structured, your obligations may be reasonable—or they may be draconian. Lessors that are focused on the corporate aviation market, typically take the time to fully understand their customer’s needs.

    They manage their business models with a long-term view. They’re much more likely to structure transactions that are truly win/win agreements.

    Both financial and non-financial obligations (maintenance, operation, etc.) affect the expenses, so it’s important to fully understand what you’re in for with a new lease and plan accordingly.

    If you’re looking for a flexible operating lease that meets your requirements with minimal bureaucracy, you’ll likely want to consider a partner that has the expertise and market presence that cultivates customized solutions for its clients.

    For more information, visit Global Jet Capital.

    This article was originally published by AvBuyer on May 9, 2018.

  • Tracey Cheek posted an article
    Global Jet Capital Reveals Importance of Financing in Driving Shift to Larger Aircraft see more

    NAFA member, Global Jet Capital, estimates the value of financing biz jets almost $23bn!

    New analysis from Global Jet Capital, a global leader in financial solutions for business aircraft, has revealed the important role financing is playing in driving the growth in business aviation.

    Since the beginning of 2016, Global Jet Capital estimates that there have been over 8,600 new and used business aircraft transacted around the globe, with the value of financing used to support those purchases totaling almost $23bn. Notably, over 60% of that financing, some $14bn, has been towards acquisitions of new and used large/heavy aircraft.

    This financing has helped increase the proportion of larger aircraft within the global fleet. Since 2016 the total number of mid-sized aircraft around the world has fallen by 8%, or 415 planes. However, these aircraft have been almost exactly replaced in number by larger models as the heavy/large jet segment has grown by 419 aircraft, a 6% increase.

    As the average purchase value of new aircraft in this larger segment was over $48.2m between 2016-2018, compared to an average of $12.5m for the balance of the market, this focus on larger aircraft provides a significant boost to the overall industry. Indeed, the overall value of deliveries of new large or heavy jets since 2016 totals $26.4bn, compared to a total figure of $14.3bn for the balance of the market.

    Global Jet Capital estimates that operating leases to the value of over $5bn are held against new and used aircraft transacted since 2016. The company has seen a significant increase in inquiries for operating leases, with clients attracted by advantages including flexibility and reduction in residual risk. Global Jet Capital expects to see growth in operating leases of over the coming five years, helping drive further aircraft acquisition.

    Of all global regions, only Africa has seen a drop in the size of its large aircraft fleet with a 2% decrease since 2016. The Middle East has remained static over this period, while all other regions have seen growth, the most significant in Latin America and the Caribbean, North America and Asia Pacific (with 8%, 7% and 6% increases respectively). North America has witnessed the largest increase in real terms, adding 317 aircraft to its large and heavy fleet, consolidating its position as the global leader for business jets.

    Dave Labrozzi, chief operating officer at Global Jet Capital said: “The figures provide a clear focus of where we are seeing expansion in the sector, and the importance of financing in supporting industry growth. The flexibility afforded by operating leases is especially beneficial in helping clients move on to higher value new model aircraft without having to remarket their existing aircraft.

    “There are significant long-term advantages in increasing the number of larger business jets in the global fleet. These obviously provide greater capacity per aircraft and therefore offer the benefits of business aviation to a wider population, something which can be particularly important for corporate owners. In addition, the increasing importance in developing new international trade links is resulting in growing demand for aircraft able to undertake longer distances to destinations which may not currently be well served by commercial airlines.”

    This article was originally published by Global Jet Capital on October 17, 2018.