The European Business Aviation Association (EBAA) is tackling the headaches facing those trying to secure funding for new and preowned aircraft with the recent formation of a finance and leasing working group to report to its associate members advisory committee (AMAC). The group will be chaired by Aoife O’Sullivan, a partner with London-based aviation law firm Gates and Partners. Her colleague Sean Gates is already a member of EBAA’s insurance working group. The association, along with the U.S. National Business Aviation Association, will hold the annual meeting, the European Business Aviation Convention and Exhibition (EBACE) in Geneva next week.
The finance and leasing group will focus on the challenges posed by reduced financing options for aircraft in the continuing fallout from the financial crisis. It will aim to identify new methods for financing aircraft and promote solutions at a European level that aim to reduce risk from the finance provider’s perspective. In addition to representatives from the finance and insurance sectors, the new group will include executives from aircraft operators and manufacturers.
“Finance is still very difficult to get,” O’Sullivan told a press briefing in London last month. “It is easier to finance a tier-two airline from outside Europe than a business jet. Why on earth would anyone be more willing to finance a tier-two airline before a business jet? The fact is that banks view business jets as risky and the industry needs to tackle that.”
As a consequence of banks’ lack of appetite for financing aircraft, O’Sullivan estimated that 80 percent of transactions these days are completed with cash, predicting that many of these deals will be refinanced at a later date when market conditions improve. “The consensus is that banks are taking too long to make decisions–sometimes as much as six weeks, and in that time you will certainly lose any aircraft you’re going after,” she said. “If billionaires want to buy into the industry, why won’t the banks?”
But one clear reason that banks are getting cold feet over aircraft financing are the new Basel III regulations covering any financial institution with more than $50 billion in assets. “As a result of the new rules, banks will need to have more capital reserves, which will mean they’ll either have to raise cash or lend less,” explained Ford von Weise, Citi Private Bank’s director of finance, at last month’s National Aircraft Financing Association conference in the U.S. He predicted that fleet operators and those seeking long-term loans will be less likely to get financing under Basel III, which takes full effect in 2019.
But O’Sullivan is convinced that the business aviation industry could do more to put lenders’ minds at rest. “We are breaking down the reasons [lenders have] for not financing aircraft,” she concluded. “We can solve them all, but we need to exchange information more.”
