Finance 1.qxp_Finance 21/05/2019 14:20 Page 1
FINANCE
Understanding the Basics of Aircraft Financing What are the essentials of aircraft financing prospective borrowers need to understand? What are the common choices faced, and how can buyers make the right decisions for their needs? Dave Higdon reviews…
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hough the world of aircraft finance bears a striking resemblance to real estate transactions – down to terms and conditions, closings, and title insurance – significant differences do exist. The wise aircraft buyer seeks an expert in the field to assist them in securing the required financing. Nevertheless, a basic understanding of the process can help buyers have a firmer grasp of the purchasing process. Following are some of the essentials to help you understand aircraft financing, and how it impacts an aircraft transaction.
The Currency of an Aircraft Transaction
First, US dollars are the currency of record for aircraft transactions. That means it’s important to keep track of the exchange rates – especially when you’re dealing with an overseas seller who is 62 ❘ Vol 23 Issue 6 2019 ❘ AVBUYER MAGAZINE
quoting an asking price in their local currency. In such cases it’s best to lock down the price in an agreed currency so you can know what the costs will be in dollars, using the dollar figure throughout the transaction. The lender will certainly be doing the same.
How to Gauge the Total Cost of Financing
Many prospective buyers don’t explore the options for aircraft financing fully enough. While the interest rates matter greatly (and are covered more fully below), so do the terms of the loan and any conditions the buyer must meet. For example: • • • •
What is the length or term of the loan? What are the required down-payments? Are there any pre-payment penalties? What’s the total cost of making the loan? www.AVBUYER.com
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