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PlayHOW DO YOU FINANCE AN AIRPLANE? When an airline decides to buy aircraft, they often call in financial organizations. But what is the duration of a loan in general? What guarantees are required? Have interest rates increased with the crisis? Here are a few answers… Buying an aircraft for an airline is a bit like buying a house for the man in the street. It’s often on credit. A company wishing to acquire new aircraft often requires the help of specialized banks, who, after a few months, will be able to develop a financial plan for the company enabling them to obtain the necessary funds to purchase its aircraft. In a difficult economic climate, the financing of millions of dollars, can even represent an advantage for some banks. "Aircraft hold their value over time. A plane has a life-span for large or medium carriers of about 25 years, financed over 10 to 12 years, so we have a very large margin on the value of the aircraft relative to the loan amount, which means that from the moment you finance, with asset based financing, you effectively become the owner of the aircraft in question which, you may seize, in the event of your client defaulting, and moreover you are guaranteed by those aircraft that you are financing." Once the funding is received, the company may take possession of its new aircraft. In certain cases, if it has sufficient cash flow, ( the money ), the company can pay in cash, without going through a bank. A practice, however, that is not recommended by financial organisations. "Cash in the aeronautical world is gobbled up very quickly. The amount of capital required to operate an airline, just for investment in its fleet, is absolutely enormous compared to any other industry. And consequently, we tend to tell our customers, if you have the cash, keep it for your working capital, for your running costs." Today very few airlines in the world can afford to pay cash for their aircraft. In most cases, whether for a just a few, or an entire fleet, companies borrow over 10 to 12 years. Rates are indexed in dollars, to which a margin must be added. "Compared to pre-crisis 2008, i.e. the period from 2000 to 2007, margins have more or less doubled. Financing costs for airlines are much higher than they were historically because of the two successive crises." Difficult, therefore now, for an airline to dispense with the aid of banks to finance its fleet. The financing of second-hand aircraft is also possible for companies, but since this requires special expertise in this domain, it’s carried out by specialized banks. Despite two successive crises, the total amount of financing new aircraft amounted to $ 75 billion in 2012. This year, that figure is expected to reach $ 100 billion.
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HOW DO YOU FINANCE AN AIRPLANE? When an airline decides to buy aircraft, they often call in financial organizations. But what is the duration of a loan in general? What guarantees are required? Have interest rates increased with the crisis? Here are a few answers… Buying an aircraft for an airline is a bit like buying a house for the man in the street. It’s often on credit. A company wishing to acquire new aircraft often requires the help of specialized banks, who, after a few months, will be able to develop a financial plan for the company enabling them to obtain the necessary funds to purchase its aircraft. In a difficult economic climate, the financing of millions of dollars, can even represent an advantage for some banks. "Aircraft hold their value over time. A plane has a life-span for large or medium carriers of about 25 years, financed over 10 to 12 years, so we have a very large margin on the value of the aircraft relative to the loan amount, which means that from the moment you finance, with asset based financing, you effectively become the owner of the aircraft in question which, you may seize, in the event of your client defaulting, and moreover you are guaranteed by those aircraft that you are financing." Once the funding is received, the company may take possession of its new aircraft. In certain cases, if it has sufficient cash flow, ( the money ), the company can pay in cash, without going through a bank. A practice, however, that is not recommended by financial organisations. "Cash in the aeronautical world is gobbled up very quickly. The amount of capital required to operate an airline, just for investment in its fleet, is absolutely enormous compared to any other industry. And consequently, we tend to tell our customers, if you have the cash, keep it for your working capital, for your running costs." Today very few airlines in the world can afford to pay cash for their aircraft. In most cases, whether for a just a few, or an entire fleet, companies borrow over 10 to 12 years. Rates are indexed in dollars, to which a margin must be added. "Compared to pre-crisis 2008, i.e. the period from 2000 to 2007, margins have more or less doubled. Financing costs for airlines are much higher than they were historically because of the two successive crises." Difficult, therefore now, for an airline to dispense with the aid of banks to finance its fleet. The financing of second-hand aircraft is also possible for companies, but since this requires special expertise in this domain, it’s carried out by specialized banks. Despite two successive crises, the total amount of financing new aircraft amounted to $ 75 billion in 2012. This year, that figure is expected to reach $ 100 billion.
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How do you finance an aircraft ?

05/04/2013

DESCRIPTION : When an airline decides to buy aircraft, they often call in financial organizations. But what is the duration of a loan in general ? What guarantees are required ? Have interest rates increased with the crisis ? Here are a few answers…

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