Lead partner in aircraft finance at Gates and Partners will speak at NBAA

Aoife O’Sullivan, lead partner in
aircraft finance at international aviation law firm Gates and Partners will be
speaking at this year’s NBAA conference when she joins an international panel
discussing the thorny subject of cross border tax issues. Fellow panellists
include an EBAA member and a Brazilian and American transactional lawyer. Together
they will debate how the growth of international business aviation operations
brings a wealth of new complexities in the tax and regulatory arena. “As
business aviation becomes increasingly globalised with new geographical markets
entering the sector it is essential that aircraft operators, financiers and
owners understand how complicated international tax issues can affect their
business,” says O’Sullivan commenting on the importance of the panel.

“With over 60% of the global executive
fleet based in North America, the region
remains one of the most influential sectors in the executive aviation industry”
says Dan Soffin, founding partner of the firm. “Although the North American market has suffered in the last
few years the true value of jets as an essential business tool is once again being
recognised.”

Soffin notes that the US remains an
extremely strong and competitive market with excellent indicators for a
continued upturn in the North American business aviation market. “The dramatic
slides of a few years ago began to stabilise in 2010 and we saw a healthy
increase in business aviation sales in the Americas this year. Recent
transactions demonstrate optimism for continued growth in 2012 remains. However
while historically, statistics show that 75% of business jet deliveries have
been to North American operators, international demand from emerging markets
such as China, Brazil, and India is moving this figure downwards and non-US
markets in their growth phase will almost certainly challenge the more mature
US market growth,” says Soffin

Gates and Partners USA transaction
experience through the recent downturn suggests that there has been a marked
increase in second hand sales and growth in the MRO market. “Pre-owned
inventory is definitely shrinking and with that decrease, prices are trending
up again. Certainly we are seeing more transactions coming to the table despite
current market volatility,” continues Soffin

Gates and Partners believe funding is still available for right buyers.
Instability in international
financial markets continues to make financing aircraft sales a challenge. In
2010, the vast majority of business jet purchases were cash payments and this
was certainly reflected in the Gates and Partners deal sheet over that period. However,
funding is still available and Gates is also encouraging clients to consider
alternative means of finance where standard loan finance is not available.

Soffin suggests lenders are definitely
more willing to lend again and ECA and EX-IM funding is more readily available
to the business and private jet market. “There are also some very interesting
new entrants offering operating and finance leases such as Milestone Aviation,”
says Soffin.

Some jurisdictions remain off limits to
certain lenders for a variety of reasons such as difficulties in enforcing
security or perceived credit risk but even in these jurisdictions there has
been an increase in available finance from local lenders. “The days of 100%
non-recourse funding do seem to be in the past and in many ways this is the
right approach. Lenders are asking for a higher level of corporate or personal
commitment to financing these high end assets. The rules have definitely
changed and purchasers will most likely have to work harder to prove financial
credibility than in previous years. Higher regulatory controls on bank lending
since the global recession means the requirements are tighter but the banks
which are still lending are taking a more measured approach to long term
lending” comments Soffin.

The North American market accounts for
about 65% of global MRO spend. “In response to the economic down turn we’ve
seen an increasing number of aircraft owners opt for refurbishment of their
aircraft,” says Soffin about the altered nature of the North American market.
In an unpredictable economy, Soffin notes that owners are looking for the most
cost-effective solutions and this often results in an aircraft upgrade as
opposed to a new purchase. Key areas of modifications include interior
refurbishment, painting, avionics retrofits and sophisticated on-board
connectivity.

Fuel prices have also driven demand for
engine upgrades and winglet installations, and it is becoming increasingly
acceptable to install new engines rather than replace aircraft. Refurbishment
companies are experiencing increased demand all of which indicates that MRO
revenue is, and will continue to be on the increase.