There is a common misperception in the business jet industry that high net worth individuals and corporations mostly pay in cash for large private aircraft. Even if the cash resources are at hand, more often than not the preferred approach is to lease or finance assets of this nature. Why? If a new or pre-owned aircraft is acquired for cash – costing tens of millions of dollars – that’s a lot of capital tied up in an asset that typically depreciates each and every year (unlike real estate, which may go up in value over time). As such, many private aircraft users prefer to take advantage of available third-party capital to finance or lease their acquisition.
Funding the acquisition of a new or pre-owned jet with cash is 100-percent equity financing – equity capital that the individual or corporation could use to make other investments. Many conclude that the investment in their business is probably a better bet than buying into an asset that will likely lost value each year. The decision that many private jet operators reach is that it’s most efficient to use third-party capital to fully or partially fund the acquisition of the private aircraft they wish to use.
An increasingly popular financing choice is the operating lease. In an operating lease the private aircraft (new or pre-owned) is purchased by a third-party financial institution (the lessor) and then leased to the operator (the lessee) for a stated term and rent. Title to the aircraft resides with the lessor, and the lessee enjoys the right to use the aircraft without the lessor’s interference.
Some advantages of an operating lease are:
- Lower up-front cash requirements than traditional financing.
- Fixed monthly rents and predictable monthly maintenance costs.
- Greater flexibility to transition to a new aircraft, with no asset to remarket at end of lease.
- No residual value risk.
- Potentially favorable “off-balance sheet” accounting treatment.
Learn more about private jet operating leases and the lease versus buy decision by downloading the full white paper, “To Buy or To Lease”, authored by the aircraft financing experts at Global Jet Capital.
We would love to hear from you. Share your thoughts below in the comments or Tweet Us @GlobalJetCap. If a private aircraft operating lease is right for you, call us at 888.436.8200 or contact one of our management team members.