- 22 Dec 2022
- Felipe Reisch
- AvBuyer Africa Articles
If financing is the preferred way for an aircraft buyer in Africa to proceed, what challenges will they face? How can buyers prepare a successful application, and what can they expect to obtain the financing? Jane Stanbury asks some industry experts…
Africa has seen a decrease in the age of its business jet fleet during the last twenty years and is now a region where new aircraft, as well as pre-owned purchases, are buoyant. Strengthening economies, international inward and domestic investment, and a rise in the number of high-net-worth individuals continue to stimulate acquisition interest. Yet financing remains challenging, why is that?
According to Mark Abbott, CEO of Vertis Aviation Aircraft Trading, 2022 was active with many transactions – often with cash payments – concluding.
There is strong interest in purchasing aircraft, but would-be owners are not always interested in acquiring expensive or large aircraft, and ironically this can be a challenge when it comes to financing. But if a prospective owner is unable to source financing, while cash buys are an option, this may restrict the choice of aircraft.
The corollary? Not all vendors want a cash transaction.
For aircraft buyers, what are the best options? Why is it often difficult to secure funding, and what can buyers do to support a transaction?
“We are not financial advisers, but as we offer highly personalized transaction services it is an area that our customers often ask us about,” Abbott explains. “We know what financiers are going to ask from the start and can help our customers through the opaque landscape by recommending the right professionals.
Abbott who has transacted aircraft in Africa and across the world for more than two decades highlights there are “many similar considerations whether purchasing [aircraft] in Africa, Europe, or the US. Financiers will always be asking comparable questions to the owner or to us as the broker.”
Graeme Shanks, Managing Director of Ionic Aviation says the key to successfully securing finance is to “plan ahead and seek advice early”. Ionic Aviation provides a range of bespoke lending and advisory services to buyers and owners of private and corporate aircraft, and Shanks has had extensive experience supporting owners across Africa.
One of the first points to consider, says Shanks, is the airframe age and the size of the potential transaction.
“The younger the aircraft, the better,” he says. “In many cases, it is difficult to finance aircraft older than 15 years of age, and particularly ‘orphan’ aircraft where the OEM has long since gone out of business - so spares, and pre-owned airframes may be limited.”
A requirement for a down-payment of 20-50%, or a balloon payment at the end of the loan of 15-20% may make structures unattractive to some buyers. “Deal sizes larger than $5m are more likely to attract international sources of finance, although large corporate airliner (‘bizliner’) transactions can still be difficult to finance,” Shanks says.
Questions of Security, Management and Maintenance
There are many factors playing into the financing story. Anticipated aircraft operations will influence a lender’s decision. “The majority of lenders will require that an owner place the aircraft under the day-to-day management and care of an independent aircraft management company or a reputable AOC holder,” he explains. “Finding a suitably qualified and experienced manager and crew in certain countries – and this doesn’t just apply to Africa – can be a challenge.”
Financiers look for security in all areas: where the aircraft is based, how it was and will be maintained, and how it is protected from an insurance perspective.
Ideally, sellers should present a written/digital history of maintenance fulfilment and unscheduled events, and buyers will need to be clear about plans for post-purchase maintenance, because scrutiny in this area is high.
Aircraft registration will also affect the financing. Those providing the loan will seek assurance that continuing airworthiness will be held to standards equal to FAA or EASA jurisdictions.
“Depending on the jurisdiction and the intentions for basing and operation of the aircraft, it may be of benefit to not only the financier but also the owner and the potential operator to register an aircraft in an offshore jurisdiction”, Shanks suggests, many of which are experienced with Africa-based aircraft.
“Either way, financiers will more often than not require that aircraft are registered in a jurisdiction that has ratified the Cape Town Convention.”
Be Prepared for Scrutiny
It is essential for the financier to carry out rigorous ‘Know your Client’ (KYC) procedures, and buyers should be ready to accept this as part of the financing process.
“What is needed varies depending on the source of funds, but be prepared for disclosure,” Shanks says. “For individuals, a detailed and comprehensive personal financial statement, bank account statements, evidence of income and sources of wealth, identity details and proof of address,” are basic requirements.
“Company borrowers will be asked to present the last two to three years’ independently audited financial statements and their most recent set of management accounts, the identities of shareholders, etcetera,” Shanks adds.
The reality is that the requirements to source financing for aircraft acquisitions in Africa are not dissimilar to that of other developed Business Aviation sectors.
How to Find Help With Financing
One of Vertis Aviation Aircraft Trading’s strengths is its network of contacts and that a good broker can introduce buyers to experienced lawyers, operators, aircraft managers and finance specialists, Abbott says. Sourcing a good aircraft broker with a strong network will help to smooth the process.
But what will a good financier look like to an aircraft buyer? According to Shanks, it’s “someone who can talk buyers through their options, manage their expectations, collate all the required personal and financial information, and source and negotiate the finance terms on the buyer’s behalf.”
There are several credible financiers willing to work with owners needing to optimize the benefits of executive aviation in Africa, and Shanks and his Ionic Aviation team are a good starting point with more than a decade of experience advising and sourcing finance for corporate and private buyers.
Africa also has its own set of potential finance providers. Nigeria’s GT Bank has been supporting aircraft acquisition for many years, for example, while banking and wealth management specialist Investec has a dedicated division with a long heritage of providing aviation financing on the continent, as does Nedbank in South Africa.
There are also alternative means to finance. Export Credit Agencies such as the recently-revived Export Import Bank of the US may be able to support financing, providing certain criteria are met and the asset is US-manufactured. And Global Jet Capital provides alternative financing structures, including a sale/leaseback program that leaves capital in a business but supports aircraft acquisition – an attractive proposition for growing companies.
Meanwhile, Credit Suisse remains one of the few international banks to offer finance for aircraft acquisitions in Africa.
“There is no ‘easy’ option,” Shanks summarizes. “There is a high degree of caution in the market at present, and rates are rising, too."
“As a result, it is important for borrowers to consider their motivations and intentions. Are they motivated by lower rates and therefore willing to place large amounts of Assets Under Management (AUM) – perhaps 25-30% of the financed amount – with a large, international private bank?
“Or are they willing to pay higher margins to secure a standalone asset or credit-based finance solution without the requirement for a wider wealth relationship?”
Whatever your motivation, do your research. It is not easy, but the benefits are plenty.
More information from:
Ionic Aviation: www.ionicaviation.com
Vertis Aviation Aircraft Trading: www.vertisaviation.com