Opinion: $167million BNDES loan validates Flight Options

Alasdair Whyte

[nonmember]Although it always wants to support exports, BNDES decision to lend $167 million to Flight Options was not taken lightly. The fractional operator is clearly in much better financial health.
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Governments make export credit finance available to support their manufacturing industries. But this does not mean that they make it easy for borrowers to get hold of the cash.

The people running export credit agencies are aware that they are lending out tax payer’s money so they take risk very seriously. This means that although it is reliable and often the cheapest source of financing, it is also usually the most time-consuming and least flexible structure for a borrower.

Flight Options’ $167 million loan illustrates this well. The operator quickly identified that it was the most efficient source of financing but it took over a year to get approval.

“It is the first of its kind and it always takes time to break new ground,” said Michael Silvestro, CEO of Flight Options. “But we are really pleased it has closed. This financing agreement underscores the bank’s confidence in our financial stability, operating strength and future prospects. “

He is right.

Export credit agencies ask for – and get – far more information from borrowers than any normal bank. Whilst it is clearly keen to encourage exports of the very good Phenom 300, BNDES backing of Flight Options is also a clear sign that the financial strength of the fractional operator has recovered.

BNDES decision is – of course – also good news for Embraer. The deal has taught it a lot about business jets and fractional operators and is likely to be repeated.

The manufacturer has had nervous moments since Flight Options’ 100 aircraft order in 2007. Soon after the signing the manufacturer was watching nervously to see if Flight Options would be able to afford to pay for the aircraft.

The management team that placed the order left and H.I.G Capital, the owner that supported the decision sold the company to a group of investors led by Ken Ricci, the founder of Flight Options, who is now chairman.

“Embraer was worried that the original order would be for real,” said Kenn Ricci, founder and CEO of Flight Options to Corporate Jet Investor in November 2010. “But we gave them a lot of comfort when we released the audited financial statement in December 2009 showing a $25 million profit – the first profit for five years.” 

Business has picked up significantly since December 1999. Silvestro says that they are seeing a lot of demand for the Phenom 300 – all of shares in the first eight aircraft have been delivered – and demand has been particularly strong since the start of 2011.

“We have seen much more demand and utilisation,” says Silvestro. “Customers are far more confident now.”

And BNDES’ decision means they can be even more confident about Flight Options.

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