Over the next few weeks, our Aviation Finance Specialist, Gary Crichlow will be informing us about the ins and outs of aviation finance through a series of posts called Aviation Finance Facts.
Choosing the aircraft deal that works for you
Look beyond the headline rate and monthly payment
A low quoted margin does not always mean you’re getting the best deal for your needs (sometimes it does, but not always). A higher quoted monthly payment may actually represent better value. Here are a few things to consider when determining the optimal deal:
The overall cost of the financing package
Consider the financier’s reference base rate, not just the margin they quote. if you’re looking at a debt structure, consider how much equity you are being asked to put in or how much wealth you are being asked to place under management; what your balloon payment is at the back end; what the break costs are for terminating early, or what the options are to extend; and how you will handle the responsibility of selling on a depreciating asset at maturity. If you are comparing it to an operating lease, consider whether the typically higher quoted monthly payment of an operating lease is worth the benefit of no upfront equity injection and the peace of mind of being able to hand the aircraft back at the end of the lease.
2. The quality of the financier
There are financiers and there are financiers. Closing a deal is not just about the rate, it is also about the process: is the financier responsive? Is the financier sufficiently skilled in aviation finance to know what they are doing? Do they have procedures that organise all the expertise needed (legal, compliance, credit risk, technical, tax, and billing to name a few) to get the deal done efficiently? The ability to execute is key.
3. The overall cost of using the aircraft
The cost of financing is only one part of the costs that are inherent in using the aircraft. It is important to take into account the cost of managing and maintaining the aircraft, especially where the financing on offer is contingent on the aircraft being based in a certain location; being registered in a certain jurisdiction; being managed by a certain operator; or being enrolled on hourly maintenance programmes. A low-rate financing offer that demands a high-cost operation may not always be the optimal overall deal.
Aircraft financing is complex. At Arc & Co., we act as a trusted partner on our clients’ behalf, helping them to navigate the complexity, look beyond the headline quoted numbers and arrive at a deal that works best for them.
To discuss your aviation finance needs, please contact Gary Crichlow.