Professional Documents
Culture Documents
Complex aircraft finance (such as those schemes employed by airlines) shares many characteristics with maritime finance, and to a lesser extent with project finance.
Private aircraft
Financing for the purchase of private aircraft is similar to a mortgage or automobile loan. A basic transaction for a small personal or corporate aircraft may proceed as follows:[1] 1. The borrower provides basic information about themselves and their prospective aircraft to the lender.
2. The lender performs an appraisal of the aircraft's value. 3. The lender performs a title search based on the aircraft's registration number, in order to
confirm that no liens or title defects are present. In many cases, a title insurance policy is procured to protect against any undetected defects in title. 4. The lender then prepares documentation for the transaction:
A security agreement, which establishes a security interest in the aircraft, so that the lender may repossess it in the event of default on the loan A promissory note, which makes the borrower responsible for any outstanding loan balance not covered by repossession of the aircraft If the borrower is deemed less credit-worthy, a surety from a third party (or from multiple third parties)
5. At closing, the loan documentation is executed and funds and title are transferred.
carrier's fleet and with that carrier's airline code, although it often retains the livery of its owner.
[10]
US and UK accounting rules differ regarding operating leases. In the UK, some operating lease expenses can be capitalized on the company's balance sheet; in the US, operating lease expenses are generally reported as operating expenses, similarly to fuel or wages.[11] A related concept to the operating lease is the leaseback, in which the operator sells its own aircraft for cash, and then leases the same aircraft back from the purchaser for a periodic payment.The operating lease can affords the airlines flexible to change the fleet size, and created a burden to the leasing companies.
Equipment trust certificate (ETC): Most commonly used in North America. A trust of investors purchases the aircraft and then "leases" it to the operator, on condition that the airline will receive title upon full performance of the lease. ETCs blur the line between finance leasing and secured lending, and in their most recent forms have begun to resemble securitization arrangements. Extendible operating lease: Although an EOL resembles a finance lease, the lessee generally has the option to terminate the lease at specified points (e.g. every three years); thus, the lease can also be conceptualized as an operating lease. Whether EOLs qualify as operating leases depends on the timing of the termination right and the accounting rules applicable to the companies.[13] US leveraged lease: Used by foreign airlines importing aircraft from the United States. In a US lease, a Foreign Sales Corporation (FSC) purchases and leases the aircraft, and is tax-exempt so long as at least 50% of the aircraft is made in the US, and at least 50% of its flight miles are flown outside the US. Because of the extensive documentation required for these leases, they have only been used for very expensive aircraft being operated entirely outside the US, such as Boeing 747s purchased for domestic routes within Japan.[14]
Japanese leveraged lease: A JLL requires the establishment of a special purpose company to acquire the aircraft, and at least 20% of the equity in the company must be held by Japanese nationals. Widebody aircraft are leased for 12 years, while narrowbody aircraft are leased for 10 years. Under a JLL, the airline receives tax deductions in its home country, and the Japanese investors are exempt from taxation on their investment. JLLs were encouraged in the early 1990s as a form of re-exporting currency generated by Japan's trade surplus.[15] Hong Kong leveraged lease: In Hong Kong, where income taxes are low in comparison to other countries, leveraged leasing to local operators is common. In such transactions, a locally-incorporated lessor acquires an aircraft through a combination of non-recourse debt, recourse debt and equity (generally in a 49-16-35 proportion), and thus be able to claim depreciation allowances despite only being liable for half of the purchase price. Its high tax losses can then be set off against profits from leasing the aircraft to a local carrier. Due to local tax laws, these investments are set up as general partnerships, in which the investors' liability is mainly limited by insurance and by contract with the operator.[16]