ExecuJet is to start financing aircraft for its customers. The international business jet operator, maintenance provider, completions, FBO and aircraft sales company gives insight into how much financing it has, what terms it will offer, maximum loan-to-values and where the cash is coming from.
ExecuJet is to start financing aircraft for its customers.
The international business jet operator, maintenance provider, completions, FBO and aircraft sales company says it has up to $500 million available.
Aircraft financing will be offered through ExecuJet’s Simplyfly programme. ExecuJet will help buyers select aircraft, then manage, maintain and finally sell them.
Financing will only be available for aircraft managed by ExecuJet. It will offer both operating leases and finance leases. Aircraft will typically need to be worth more than $20 million and be under five years old at the start of deals. It will restrict loan-to-values to around 50%.
ExecuJet will also offer customers the option to fix ownership, operating costs into fixed monthly and hourly rates giving them more certainty on what a jet costs to operate – although there will be some limited extra costs. It can also sell charter on aircraft if owners wish.
“We are proud to announce that ExecuJet will be a leader in combining all private aviation services in the form of a full aircraft lifecycle ownership program that truly benefits our clients with a simple, transparent effective and efficient solution,” says Niall Olver, CEO, ExecuJet.
The financing will be provided by Dermott Desmond, an Irish financier. Desmond acquired the majority of ExecuJet in May 2007 and is the aviation company’s chairman. The UK’s Sunday Times newspaper estimates that he has a net worth of over $1.45 billion.
“We think offering financing will make it significantly easier for our customers to get the right aircraft,” says Andrew Hoy, managing director of ExecuJet Aircraft Trading.
Whilst it is easier to find aircraft financing now than it was two years ago, banks typically insist on individuals providing personal guarantees that loans will be repaid. Private banks also often ask that individuals place assets under management in return for loans.
ExecuJet will not require guarantees. “As one knows, true non-recourse finance is a rare product and we trust this will ensure that ExecuJet continues to stay one step ahead in the industry,” says Olver.
One region where the scheme may be particularly welcomed is Africa. ExecuJet was originally launched in South Africa and it has large maintenance facilities in Cape Town and Johannesburg with new facilities opening next year in Nigeria. Hoy says it is comfortable financing aircraft in other African companies, like Nigeria, provided that they registered on the company’s aircraft operating certificate.
“We are not looking to compete with banks,” says Hoy. “We just want to help customers that want to work with us. Particularly ones that do not want to give personal guarantees. We will continue to work closely with banks on many deals.”
ExecuJet says it will charge margins that will not be much higher than private banks offer their clients.
“There is plenty of room for new financing. We wish them luck,” says one banker.
ExecuJet is not the first operator to offer financing. Others have used facilities from banks to help customers. However, many of these facilities were pulled in 2009 when aircraft values fell below agreed loan-to-value limits. Brokers have also used bank loans to buy aircraft to resell. The big difference to other brokers and traders is that the company is self-financing the scheme and will also manage the aircraft. NetJets started offering fractional share financing to its US corporate customers in 2010.
Customer finance is traditionally seen as one of the riskiest types of finance. This is partly because sellers tend to end up with undiversified portfolios – both by product type and region – and credits that have been turned down by other lenders. ExecuJet hopes that it can mitigate some of the risk because of its role as an aircraft manager. In fact, ExecuJet will be more like a leasing company that enters into financing arrangements expecting to have to remarket equipment rather than a vendor financing company.
In the event that a client defaults, it will simply end up owning an aircraft it is already managing. It can be confident about the aircraft’s condition and will have an experienced global sales team ready to sell it – making its re-marketing costs are negligible – or manage it as a charter aircraft until the market improves.
In fact, because it is being conservative with loan-to-values, Hoy believes that it should make a profit on any defaulted aircraft by selling it. By launching financing into a depressed market it can take even more comfort that values will improve.
One private banker is more cautious. “ExecuJet should be very careful,” he says. “There are many pitfalls with financing; typically you find problems where you did not expect them.”