FUNDING IMBALANCE Financiers are now increasing periodic appraisals of the aircraft asset on a far more frequent basis, and when an imbalance occurs between their internal risk/reward models, principle buy-downs are increasingly issued to the borrower to keep risk margins in balance for the banks. We at Avjet have seen substantial increases in requests from banks and financial institutions for desktop appraisals. While we haven’t seen much of an increase in the frequency of requests from banks for equity infusions on our clients’ aircraft we are hearing about it from other brokers, bankers and aviation firms as market values on many aircraft (especially older ones) continues to plunge, making banks nervous of future loan default risk and looming write-downs.
WHO? WHAT? WHERE? So to sum it up, the state of aircraft finance depends on where you are, who you are and what you want to borrow the funds for (i.e. the type of aircraft). In the past all the factors mentioned above had varying degrees of priority on the lender or underwriter’s checklist—but in today’s world they all have equal importance and cannot be overlooked
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or underweighted in the lender’s risk model. This has edged-out many important segments of the aviation industry - smaller aircraft, older aircraft, and specific types of borrowers (operators and fractional endusers among them). The 2008 financial crisis has also edged-out some other sources of funding (such as the capital markets) which haven’t returned to the aviation marketplace… at least in terms of cheap financing. Traditional banks dominate the market today. Lending has crept to the top of a food chain populated by the wealthiest end-users and corporations that offer the highest degree of financial insulation from either personal/business risks or exogenous outside economic shocks. However, with that being said, capital will always flow to new opportunities with the best risk and reward ratios, so the myth that funding would never reach places like Nigeria or Brazil have clearly been misplaced; funds are flowing to these regions, but only after intense scrutiny. I am optimistic that the aircraft finance market is alive and well, but as this article
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outlines there are still imbalances in where, and how much funding is available. In my view, this is not a bad thing. It means that safeguards have been put in place that hopefully will defend our industry against the lax lending standards that took place prior to the financial collapse in 2008. ❯ Andrew C. Bradley is senior vice president, Global Sales & Acquisitions at Avjet Corporation, an international provider of aircraft charter and management solutions. The company is headquartered in Burbank, California, and maintains a global presence in Washington D.C., Seoul, Dubai, Abu Dhabi, Moscow and other locations around the globe. To learn more about the company, visit www.avjet.com ❯ Do you have any questions or opinions on the above topic? Get them answered/published in World Aircraft Sales Magazine. Email feedback to: editorial@avbuyer.com
WORLD AIRCRAFT SALES MAGAZINE – March 2012
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