Air Plane Photos 2013: Airplane For Sale

Monday, 8 July 2013

Airplane For Sale

Source(www.google.com.pk)

Aircraft finance refers to financing for the purchase and operation of aircraft. Complex aircraft finance (such as those schemes employed by airlines) shares many characteristics with maritime finance, and to a lesser extent with project finance

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:

The borrower provides basic information about themselves and their prospective aircraft to the lender.

The lender performs an appraisal of the aircraft's value.

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.

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)

At closing, the loan documentation is executed and funds and title are transferred.

As described above for private aircraft, an airline may simply take out a secured or unsecured loan to buy a commercial aircraft. In such large transactions, a syndicate of banks may collectively provide a loan to the borrower.

Because the cost of a commercial aircraft may be hundreds of millions of dollars, most direct lending for aircraft purchases is accompanied by a security interest in the aircraft, so that the aircraft may be repossessed in event of nonpayment. It is generally very difficult for borrowers to obtain affordable private unsecured financing of an aircraft purchase, unless the borrower is deemed particularly creditworthy (e.g. an established carrier with high equity and a steady cash flow). However, certain governments finance the export of domestically produced aircraft through the Large Aircraft Sector Understanding (LASU). This interstate agreement provides for financing of aircraft purchases at 120 to 175 points over prime rate for terms of 10 to 12 years, and the option to "lock in" an interest rate up to three months prior to taking out the loan. These terms are often less attractive for larger operators, which can obtain aircraft less expensively through other financing methods.

By directly owning their aircraft, airlines may deduct depreciation costs for tax purposes, or spread out depreciation costs to improve their bottom line. For instance, in 1992, Lufthansa adjusted its accounting to depreciate aircraft over 12 years instead of 10 years; the resulting drop in depreciation "expenses" caused the company's reported profits to rise by DM392 million. JAL made a similar adjustment in 1993, causing the company's profits to rise by ¥29.6 million

On the other hand, prior to the advent of commercial aircraft leasing in the 1980s, privately owned airlines were highly vulnerable to market fluctuations due to their need to assume high levels of debt in order to purchase new equipment; leases offer additional flexibility in this area, and have made airlines increasingly less sensitive to cost and revenue fluctuations, although some sensitivity still exists