As interest rates rise, supply chain issues persist, and the geo-political landscape demonstrates ongoing instability, certainty is a precious commodity. Unfortunately, many business aircraft users tolerate a high level of uncertainty to obtain an aircraft with traditional financing. Even with a meticulously planned approach to buying and selling these highly-regulated assets, it’s impossible to foresee all events that could potentially impact the aircraft’s value—or your balance sheet.
Now may be the right time to consider building more certainty into your approach to business aviation with an operating lease. Here are the top five advantages unique to an operating lease for individuals and organizations, with insights from Alex Tang, Global Jet Capital Sales Director Asia, Asia Pacific.
Rather than investing in a depreciating asset, you can save your capital to invest in your business or other more lucrative investment options.
For example: Typically, a traditional loan is limited to no more than 70% of the total cost of the aircraft—which means a significant down payment for a constantly depreciating, non-core asset. With an Operating Lease, up to 100% of the cost can be financed. More importantly, the large down payment of a loan scenario is replaced by a smaller security deposit along with other closing costs.
Yes, operating leases are contractual arrangements. The right lessor, however, can structure a lease that can adjust to changes in your mission. Depending on your needs, a lease can permit extensions, provide an early termination opportunity, or facilitate a move into a larger or smaller aircraft. In this framework, it’s easy to pivot to suit your unique situation.
A lack of flexibility is where the risk of traditional ownership far exceeds any perceived limitations of a operating lease. Business aircraft are meant to be a boon to operations, but changes to your mission can turn a previously useful asset into a major liability. For example, if you experience an uptick in international business, but have recently purchased a midrange aircraft that can’t make the trip to your new clients, your capital will be tied up in an asset that no longer supports your business goals. An operating lease can assist with an upgrade at ease.
Operating leases also provide you with exclusive access to your aircraft for the duration of the lease. This means consistently using your crew, leaving your personal effects on board, and enjoying the many other benefits of ownership while preserving liquidity. You may face restrictions on alterations to the aircraft that could potentially impact residual value, as well as other usual lease terms, but these limitations fall within normal patterns of ownership. A knowledgeable lessor can offer flexible terms that suit your needs without stifling your choices.
The predictable term of an operating lease provides you with more flexibility than traditional ownership. When the lease ends, you simply turn the aircraft back over to the lessor—no additional planning or contingencies needed. In contrast, going through the process to sell an aircraft when it’s time to upgrade or make changes to your operations is anything but predictable. From hiring a broker, to waiting for months (or even years, in extreme cases) to find a buyer, to paying the costs of maintenance, insurance, and storage in the meantime, you may be looking at lost time—and millions in unbudgeted expenses. We will take back the aircraft at the end of lease to let you focus on running your business.
You may think that traditional financing confers the best coverage for your choice of aircraft, but that’s not always true. The right operating lease provider has experience with a broad variety of manufacturers and models, putting few limits on your selection of aircraft. Whether you are looking for a new or pre-owned aircraft, operating leases can accommodate either route you choose to take. In fact, at times, operating leases may open more possibilities for you than traditional aircraft financing.
Specialists in business aviation financing like Global Jet Capital look to spread risk across a large portfolio, encompassing aircraft from every major manufacturer, global market, and a variety of age ranges.
In a low interest rate environment or hot resale market, you may ask yourself “Why choose an operating lease?” The first reason is simple: current conditions are no guarantee of future conditions. A strong resale market may or may not be around when you choose to sell. The low interest rate environment may be transient as well, which may reduce demand for your pre-owned aircraft from the buyers of tomorrow. In the meantime, you will have paid more for a depreciating asset.
The second reason is applicable regardless of interest rates: large down payments are part and parcel of traditional financing. That substantial capital outlay may not prove to be such a good investment, after giving effect to a volatile geo-political situation, emerging technology, and the unavoidable risk of market fluctuation.
These risks are eliminated when you choose an operating lease. You do not have any risk relating to the spot market value of the aircraft at the end of the lease and costs remain predictable for the duration of the lease.
When you’re the registered owner of an aircraft, public records may identify the owner/operator during normal flight operations. An operating lease reduces visibility to the aircraft’s end user since the owner of the aircraft is the lessor—not you or your organization. This translates to a higher level of anonymity with no extra effort required.
Wondering which aviation financing option would best suit your unique situation or interested in learning more about the benefits of an operating lease? Connect with one of Global Jet Capital’s business aviation experts.
Global Jet Capital’s financial products are designed to help you optimize your private aviation experience across the lifetime of the asset—from acquisition to disposition and upgrade. Whether freeing up capital or enjoying the flexibility to transition between aircraft, we work tirelessly to understand your needs and provide straightforward and highly responsive solutions.
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