PRE-FINANCE CONSIDERATIONS

For those HNIs who have their own funds, aircraft acquisition is one problem less. For those who have to borrow funds from the market, it is a herculean effort, particularly in India where an aircraft is not categorised as asset. In a white paper Atul Khekade and Ritesh Kakkad of Netz Capital Advisors state that “this makes it particularly interesting to set up a leasing and financing industry around private jets and helicopters considering India’s domestic banking policies and international financing structures.” The white paper provides a guide to those individuals/companies to buy an aircraft with an aircraft buyer’s check list. They state that the customer should look at personal or business utility based on current available nearest airport, airstrip size, local landing point or issues related to quick permissions for landing and take-off. Customers should keep clear focus on whether the usage of aircraft is personal or for charter or for a company and should not only look at aircraft price but also the cost of operation, local duty, insurance and cost of regular maintenance. Aircraft acquisition is one aspect, keeping the aircraft in flying condition is another apsect. The more the aircraft is in the air the better it is for a company.

The options for funding an acquisition include (a) direct cash payment (which is the cheapest way to finance aircraft); (b) bank loans (loan guaranteed by aircraft where the bank can repossess the aircraft in case of default – but banks do not normally give more than 75 per cent of the acquisition cost); (c) finance leases which are similar to loans, except that the financial institution buys the aircraft back from the operator (there is a monthly lease payment that the operator has to pay); (d) operating leasing wherein the lessors either order aircraft from manufacturers or buy them from airlines/operators and lease them for three to five years to those interested and these lessors also lease crew and pilots with the aircraft (known as wet lease) on a monthly rental basis; and (e) manufacturer support – while most manufacturers may not get involved in financing aircraft, but they do provide assistance with regard to locating financiers/lessors, etc. and also sometime guaranteeing the aircraft.