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Mitchel Mullins

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Aircraft Loans Finance Airplane

started by Mitchel Mullins on 29 Jan 12
  • Mitchel Mullins
     
    Are you trying to buy a plane, heli-copter or glider? If so, odds are you're either soaking in cash or do not have nearly sufficient. If it is the latter, never fear: You might be able to borrow the money.

    Aircraft loans are financing arrangements, just like home or car loans, that permit people and businesses to purchase and use aircraft. Given the very high cost of most aircraft, airplane loans are very common in the world of air travel, both commercial and private.

    Many aircraft loans are relatively simple while others are more complex. At the simple end are loans for private and business aircraft; at the complex end are the loans commercial airlines use to buy their aircraft fleets. The easiest loans are those used for corporate and private aircraft; the more complex are used by commercial airlines to purchase and maintain their fleets. The simple schemes appear like auto loans and home mortgages, while the more complicated arrangements look like maritime and project financing.

    Here's how a private loan process typically works. The very first step is to provide the lender (most likely a bank or financing organization) data about yourself and the airplane you're planning to purchase. The lender takes the next step, evaluating the value of the plane and conducting a search of the aircraft's title to guarantee it is owned free and clear. A security arrangement is then prepared, providing the lender a security interest in the airplane, along with a promissory note which holds you personally responsible for the rest of the loan in case repossession of the aircraft doesn't cover the entire balance. A surety, similar to a co-signor, might be required if you have questionable credit. If you've shaky credit, the lender may also need a surety, just like a co-signor.

    This easy loan plan is sufficient for those buying private and business aircraft, that are relatively inexpensive compared to larger aircraft. Big commercial jets, alternatively, are extremely costly. Last year, Boeing pegged value of its 747 jets at $333 million; although airlines don't normally pay the full sticker price, the final cost is still high.

    There're 3 common methods used by airlines to finance their fleets: direct lending, operating leasing and financing leasing. Cash payments, tax leases and manufacturer assistance are alternative options.

    Direct lending is just like the traditional aircraft loans given to private owners, only on a much larger scale. In this case, several banks sometimes contribute to one airline's loan. Here, as with private aircraft loans, lenders normally demand a security interest in the aircraft therefore they may repossess it if the loans go unpaid.

    Operating leasing, as opposed to direct lending, does not grant ownership to the aircraft's users. In this type of aircraft loan, airlines lease their aircraft from Commercial Aircraft Sales and Leasing organizations, businesses that lease used aircraft and equipment to airlines. Operating leases are short term, rarely lasting more than 10 years, and they typically work greatest with small airlines as they cost less and allow the airlines to get rid of used aircraft when they reach their age limit.
    The 3rd kind of aircraft loan used by airlines, called finance leasing, is basically a more complex type of operating leasing. Using debt and equity financing, third parties (partnerships or special purpose companies) purchase aircraft and lease them to airlines. Often the airline has automatic ownership, or the option to buy, when the lease expires.

    Aircraft Loans

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