What are the trends for business aircraft financing in Europe at this time, and how should prospective borrowers and lenders read these? FlyFunder’s Paul Sykes shares his thoughts and observations with AvBuyer…
Private Jet in Europe
What are the trends for business aircraft financing in Europe at this time, and how should borrowers and lenders read these? FlyFunder’s Paul Sykes shares his thoughts and observations with AvBuyer…
At a time eyes turn to the European Business Aviation market with EBACE coming up, AvBuyer spoke with FlyFunder’s Paul Sykes to get his insights into the European borrowing and lending market.
Having amassed several years’ experience as an aircraft financier with AirFinance, GE Capital and RBS Aviation Capital (among others), Sykes and a team of experienced financiers recently launched FlyFunder, an online platform connecting prospective borrowers and lenders around the world.
Designed to facilitate, expand and revolutionize the interaction between General Aviation buyers and financiers, FlyFunder fills a perceived communication and connection void between specialist aviation financiers, the buyers of aircraft, the Original Equipment Manufacturers (OEMs), and the sales agents who want to sell their aircraft.
Of the European aircraft financing market, Sykes had the following to tell us…
AvBuyer: What are some of the unique characteristics of aircraft financing within Europe, both from a lender’s and a borrower’s point of view?
Sykes: Europe is a highly fragmented market, with a broad mix of very high income, developed and financially astute markets and others that are less so. Western Europe – particularly the UK, France and Germany – are well-served by local and international lenders while others (Eastern Europe and the Balkan states) rely more on local lenders and export credit.
Scandinavia, while much smaller in terms of a business aircraft population, is very well served thanks to some extremely strong local lenders and niche financiers.
What makes Europe a unique – and occasionally complex – environment for lenders compared to the US is that almost every deal has a cross-border element.
There is of course a mix of local currencies, tax regimes and legal systems that can add some complexity when lending, too.
Borrowers will note that lenders tend to prefer to lend in USD (aircraft are valued across the board in USD), and this has some impact on their own balance sheet risk. Hedging strategies are occasionally required to offset potential issues.
AvBuyer: Traditionally, Europe is the second largest Business Aviation marketplace in the world. Does this reflect in terms of general access to aircraft financing?
Sykes: Very much so. As mentioned, some markets are very well served and in Europe there are a vast number of lenders with varying appetites for credit and asset risk.
If a borrower is a poor credit in a less developed part of Europe they are going to struggle to find financing. But poor credit is a major problem wherever you are now as the swing in recent years has predominantly been from an asset-based to credit-based lending environment.
AvBuyer: What are the traditional preferences in Europe regarding aircraft financing? What types of financing are popular, and are these likely to shift at any time in the foreseeable future?
Sykes: There is a time and a place for all financing solutions within the European space. Leasing appears to be back in a way that has not been seen for many years, although it is fair to say this is predominantly in the Long Range and Large Cabin jets rather than smaller aircraft that took the biggest depreciation hits through the last decade.
Export credit still has an important part to play in the less well-served areas, although the restrictions at US Ex-Im bank (sub $10m and no more than seven years) make it harder to fund US-built assets until that political situation has been resolved.
Luckily there are some creative export credit agencies that have been able to plug some of the gaps, and more often than not buyers are able to obtain a solution that works for them.
In the future, some of the larger lenders that pulled out of the market should return. Healthy OEMs, financiers and operators are needed to get anywhere near to where we were at the start of the century. It will take longer to get to that point in Europe than it will in the US. Arguably Europe may not return to that level, although I hope to be proved wrong. Ultimately, we can look to the future with cautious optimism…
AvBuyer: We’ve been seeing more than a year’s worth of growth in flight hours within Europe. Has this reflected in applications for aircraft financing within the continent?
Skyes: This is definitely the case from where I’m standing. We have seen a sizeable uplift in applications across all business aircraft asset types. With the depreciation rules in the US encouraging the purchase of aircraft, inventories have been reducing and prices hardening up to a good extent in Europe, although admittedly less so than stateside.
As always, there are some markets that are still being held up by macro-economic factors (such as the drag on the helicopter market driven by the oil and gas prices, issues relating to the CHC chapter 11, and SuperPuma crashes leading to problems with that aircraft family).
While one might expect something negative to be said about Brexit at this stage, I’ve not seen anything that has had a critical impact on the market apart from the devaluation of the pound. That may have led to some delay in buyers purchasing US-denominated assets rather than complete postponement.
AvBuyer: So are there any reasons for borrowers and/or lenders to be cautious in the European Business Aviation marketplace at this time?
Sykes: There has been more of a cultural shift in Europe, and not in a positive way. A lot of the European media highlights Business Aviation as a sign of over-indulgence in the corporate environment, with some high-profile companies feeling compelled to sell, or significantly downsize their aircraft use under shareholder pressure.
This has made buyers more cautious and users more secretive in a way that they should not have to be. Business Aviation is just what it says on the tin: a business tool, with sizeable advantages for senior management teams and individuals globally.
AvBuyer: How does a prospective borrower enhance their chance of doing business within the European marketplace in 2018?
Sykes: It is useful to be able to understand all of the options before making a decision. If, as a prospective borrower, you have a very specific requirement, the number of lenders you can deal with will be limited and you’ll potentially pay a higher rate.
Be open-minded with the solutions available and base the decision on having the best rate and most flexibility. If you are not sure what you would like, there are many finance brokers who can help identify the positives and negatives of each solution.
Be as transparent with lenders as you can be. If having a Non-Disclosure Agreement in place before speaking with lenders is preferable then always ask for this. Most lenders would be willing to enter into these documents.
More information from www.flyfunder.com