All Commercial Finance will need to know what is the intended use of your aircraft. It's a question Finance companies will need answered and will determines which finance companies will make you a aircraft loan and the applicable terms of the deal.
Aircraft finance companies classify aircraft in two categories: Personal use or pleasure craft and business use. An aircraft used for business usually employ far higher hour use annually than pleasure crafts. Which translate to higher exposure to the opportunity for accidents and wear and tear on engines, landing gear and airframe? Two vastly different risk profiles!
Being so, the finance company’s recovery, in repossession, of its invested loan funds for a business aircraft will be impacted by three factors: value decline due to aircraft age, condition of aircraft and time on frame and components.
A finance company’s repossession of a pleasure craft usually fair better in the expectation of recovery of total invested funds due to lower hour usage and general condition of the aircraft consequently, less depreciation.
Mitigating the declining depreciation curve, finance companies try to project what the aircraft as an asset will be worth at the end of their invested aircraft loan term. Having the remaining principal loan balance decline at or faster than the rate of depreciation is ideal with all things being equal on a well kept aircraft. The down payment at purchase should be the amount equaling the difference in the initial purchase price (assuming the price equal the value) and the value at the end of the loan term.
The concern for investment protection by aircraft finance companies are the same for commercial employed aircraft as business or even greater as surveyed by All Commercial Finance. Commercial aircraft will stack up more flight time than a charter business aircraft and is subject to a steeper depreciation curve and accelerates the loss in equity. All Commercial Finance see this as one of the principal reasons airlines prefer to lease. Commercial aircraft financing mirrors business aircraft financing with the exception of size.
It's also harder for a lender to step in and turn over a high usage aircraft put on a charter certificate. That business exists to fly aircraft. In the case of a bankruptcy, a bankruptcy judge may acknowledge the revenue-generating potential of the aircraft as a working asset. The judge could then rule that the aircraft must remain in service. The plane would continue to fly, its value would continue to decline, and the lender would be forced to stand by while its asset continues to lose money from the continued use. That’s an unacceptable risk profile for most finance companies. The following are some of the reasons business aircraft has take center stage in modes of transportation for business activities.
All Commercial Finance understanding which of its financing partners will finance the acquisition of business and commercial aircraft assures our customers a fighting chance at acquiring what they want in aircraft and finance terms. Finance companies that fund business and commercial aircraft transactions do so because of their knowledge of the industry, business and inherent risk.
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