Buying or leasing a corporate jet can help businesses operate more efficiently and is sometimes cheaper than relying on commercial airlines. But to reap those benefits, executives must carefully structure aircraft financing that suits their company's near- to medium-term business needs. A variety of factors must be weighed: annual utilization, financing rates, the optimum financing term, whether to finance via a loan or lease, residual value estimates, depreciation rules, and maintenance costs, to name just a few.

The process is often rigorous. But even executives new to aircraft financing can keep their deals on track and secure attractive terms by following three simple guidelines: Start Early, Think Beyond Rates, and Bring in Expertise.

Start Early
Believe it or not, aircraft financing is often delayed by the buyer until nearly the last minute. Sometimes it's virtually an afterthought because executives are preoccupied with other important details, such as conducting operational analysis on how the company will use the plane and studying technical specifications to select the right aircraft.

But waiting until the 11th hour to line up financing can have long-term negative consequences. If you don't allow adequate time, you may not be able to structure a package that addresses your specific requirements. Some executives delay financing details assuming they will tap an established credit line to finance the aircraft. But that could be a mistake. By drawing on a credit line from a primary lender, a company reduces its access to working capital. On the other hand, by using an aircraft financing specialist a company can tailor a loan or lease and leave its core funding facility intact.

Think Beyond Rates
It's natural to want the very best terms possible. For example, the interest rate, while important, is just one component of a financing package. Executives should be careful not to let a few basis points outweigh all else. For instance, today we're in an extremely low rate environment. A five-year financing deal might appear attractive. However, a 10-year financing term can provide the flexibility to hold onto the aircraft longer if rates suddenly increase during your fifth year of ownership. What's more, it may be possible to apply the remaining balance of the longer term lower interest rate to a subsequent aircraft.

There are many other issues to consider as well. Will your company be able to utilize the tax benefits associated with loan financing, or might a lease be more beneficial? Are you comfortable absorbing the asset's residual value risk? Could leasing the aircraft improve your Alternative Minimum Tax situation?

The lesson here is that any aircraft financing deal has a variety of elements that need to be considered – beyond the interest rate – to create the optimum financing solution for your company.

Bring in Expertise
Not surprisingly, there is little in-house expertise given how infrequently aircraft financing deals occur at most companies. That's one reason why teaming up with an experienced financier – with staying power – is so important. Today, many companies that financed aircraft during the boom years now find they must establish new relationships, as their previous financial services provider is no longer in business.

A company should start by asking a potential financing partner what it offers besides a competitive interest rate. Can it propose and explain the benefits and drawbacks of various financing options? Does it understand the client's business and needs? Does it have tools, resources and expertise available – beyond the deal – to help your business succeed?

For example, it's important your company understands the pros and cons of enrolling in an Hourly Cost Maintenance Program (HCMP). The biggest wildcard when owning an aircraft is maintenance expense. Should an engine require major maintenance or replacement, an aircraft's enrollment in a HCMP can turn a major expense into a minor inconvenience. Not only do such programs provide financial security and replacement parts when needed, they can also be used by experienced lessors to enhance leasing transactions. For instance, it may improve the residual value of the aircraft.

Crafting a favorable aircraft financing deal takes time and attention. But by keeping three simple guidelines in mind – Start Early, Think Beyond Rates, and Bring in Expertise – executives will enjoy their future flights all the more, confident they've negotiated smarter aircraft financing for the company.

Dave Labrozzi is president of GE Capital, Corporate Aircraft Finance, providing clients with structured loans, leases and access to GE know-how for over 30 years.

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