Access to finance for smaller business jets has become a source of concern, with statistics showing that purchases of new small jets fell dramatically last year. A mere 109 very light jets and entry level jets – which sit at the smallest end of the market – were sold globally in 2011, compared with 204 in 2010, according to Ascend data. In the first two months of this year, only six were sold worldwide.
Behind the slump in small jet sales lies the fact that borrowers are struggling to secure the necessary financial backing to boost their purchasing power. “Few banks out there will touch anything worth less than $10 million, nor anything over 15-20 years of age, which covers a large amount of aircraft within the light jet segment,” says Daniel Hall, aviation analyst specialising in business jets at Ascend.
Aoife O’Sullivan, partner at law firm Gates and Partners, marvels at the fact that banks are willing to lend against an airline but not a private individual. “Second-tier carriers have two assets at risk; both the aircraft and the airline business itself – the airline business provides the income to support the loan facility, whereas a high-net-worth individual worth $200 million can offer additional very valuable security unrelated to the aircraft,” she notes.
Sales of used small business jet have fared substantially better than new deliveries. In 2011 alone, 534 used very light jets and entry level jets were sold, up 3% on the previous year. Hall says that smaller aircraft have been piling into the used market since 2008, when many small businesses, fractional operators and owner fliers could no longer afford to keep and fly them.
However, individuals looking to buy an aircraft are often left to their own devices to source financing, says O’Sullivan, who argues that manufactures should get into the market at bit more to help buyers find funding. “The industry isn’t doing itself any favours,” she adds, noting that banks are reluctant to provide financing for smaller deals which often have the same amount of paperwork as larger deals.
The European Business Aviation Association (EBAA) recently set up a finance and leasing focus group aimed at encouraging more active dialogue and support between manufacturers and financiers. “I think this will be a welcome development,” says O’Sullivan who is chairing the group. “We will be tackling manufacturer support to access to finance and industry support to the financiers from operators,” she notes.
Manufacturers are being urged to follow in the footsteps of Textron or Hawker Beechcraft. For several years now, Textron Financial’s aviation finance group has been providing aircraft loans and leases for new Cessna and Bell Helicopter products, while Hawker Structured Finance has been developing relationships with both Ex-Im and independent financiers to encourage more finance options on their aircraft.
“The manufacturers need to show their commitment to their product to the financiers, which goes beyond getting white tails off the ramp,” argues O’Sullivan. “There are many products the manufacturers can offer such as extended warranty periods, performance guarantees and maintenance support with assignability to financiers.”