In the rapidly-changing global business environment, time is money. No one understands this quite like the business traveler. However, often times their hands are tied as they are left to the mercy of commercial airlines, airport delays and many more travel hiccups that end up proving costly to their business’s bottom line.
While some delays are inevitable, having private jet services at your disposal makes flying a breeze as your soar above the rest in an efficient business jet of your own. Many businesses are quick to turn away from the larger price tag of an outright purchase of a private business jet without considering the financial options.
Private aircraft leasing is just one of these options that has made aviation financing easier than ever before, helping hundreds of companies reach their destinations faster than ever before while building their bottom lines. Let’s take a look at some of the most common options in private aircraft leasing and how businesses stand to benefit.
Aircraft Operating Lease
As one of the most popular tools in aviation financing, the operating lease is a strong ally on your way toward an improved bottom line. Within an operating lease, the aircraft lessor and the lessee agree to the use of a private aircraft for a given period of time, typically for five or more years. After paying a security deposit and periodic rental payment, the lessee remains responsible for the upkeep of the aircraft and other terms listed in the lease. Upon the end of the agreed leasing period, the lessee returns the aircraft and is refunded their security deposit.
This specific type of aviation financing provides the lessee with a number of advantages to help build their business.
- Better Allocation of Capital: It’s no question that a long-range private aircraft comes with a hefty price tag. An operating lease makes use of a private business jet more affordable than ever before. Under an operating lease, the lessor covers the up-front cost of the aircraft while the lessee funds a security deposit and rental payments, allowing them to distribute capital to other areas of their business to build their bottom line.
- No Residual Value Risk: As with most assets, the value of a private jet is likely to decrease over time as newer models with improved technologies are released by the manufacturers. Under the terms of an operating lease, the lessee is not at risk for this loss of value over time and can enjoy the use of the aircraft during the period of the lease without worry of the jet’s declined value.
- Certainty of Cost: Within the terms of a private jet operating lease, the lessee will have a consistent cost of operation. When the lease period expires, the cost of ownership and value risk is transferred to the lessor. The customer benefits from the certainty of costs when it comes to aircraft use, allowing them to budget and plan for a routine expense without any risk.
- Accounting and Tax Benefits: An operating lease may allow users to minimize their tax liability on the aircraft, restricting their taxes to monthly lease payments rather than the full cost of an aircraft asset.
In addition to the advantages above, operating leases provide the lessee with a number of advantages at the end of the lease period. The lessee can keep the aircraft and extend the lease, or, they can return the aircraft and upgrade to a brand new aircraft that better meets their evolving needs. This flexibility is the hallmark of an operating lease.
Capital Lease
Also known as a finance lease, a capital lease provides the user with some of the benefits of full ownership while easing the financial burden associated with private jet ownership and use. Under a capital lease, the lessee selects an aircraft that is purchased by the lessor. The lessor recovers a large part of the cost under a series of rental payments and interest paid by the lessee. Upon the end of the leasing period, the lessee has the option to purchase the aircraft outright.
Over the course of the leasing period, the finance company holds legal ownership of the asset, but the lessee has control over the asset to provide them with several benefits.
- Benefits of Ownership: For all tax and accounting purposes, a finance lease of a private aircraft is considered as ‘owned,’ by the lessee. This allows for a variety of benefits including the depreciation and other inducements. Upon the completion of the lease period and final payment, the lessee gains all residual value of aircraft ownership.
- Allocation of Capital: Being solely responsible for a security deposit and rental payment installments, the lessee is able to reap all the benefits of private jet ownership without a capital-intensive loan structure.
Under a capital lease, the monthly or periodic installment payments are typically some of the lowest on the market, allowing the lessee to slowly complete the outright purchase of a private business jet without such a heavy upfront financial burden to its company.
Mezzanine Loan
Mezzanine, or junior loans, offer borrowers the ability to source attractively priced senior debt or finance lease capital to fund the senior portion of an aircraft. In some cases, a separate financing organization can provide the borrower with additional funds through a “top up” capital loan which is applied to financing 80 – 100% of the acquisition of a private aircraft.
- Allocation of Capital: When combined with a traditional senior loan, the borrower can account for up to 100% of their aviation financing. In most circumstances, the borrower only has to fund an equity deposit, security deposit and other transaction costs upon completing the purchase.
With over 200 years of combined experience on their side, the team at Global Jet Capital has the financial expertise and aviation knowledge necessary to help you make the most informed decision possible when it comes to your aviation financing. We’ll take the time to walk you through each step of the process towards private jet ownership, uncovering areas of opportunity along the way to help you maximize savings and value to help build your bottom line. Learn more about aviation financing options today by contacting Global Jet Capital.