What are the trends for financing in Latin America, and how should borrowers and lenders read these? Rodolfo Lacayo, AirFinance, shares his insights with AvBuyer…
With eyes turning to Latin America ahead of LABACE, AvBuyer spoke with Rodolfo Lacayo, Vice President, Latin America for AirFinance to learn his thoughts on the region’s borrowing and lending market.
AirFinance provides financing of General Aviation aircraft, including business jets, turboprops and helicopters with an emphasis on transactions outside the US. Lacayo has spent two decades in banking within Latin America across various sectors, including for Dow Chemical Company and Ravago Mexico, prior to representing AirFinance within the region.
AvBuyer: Currently, the Latin America region accounts for around 7% of the world’s private jet fleet, and 13% of the world’s business turboprop fleet (per JETNET). Is there much buying activity in the region at this time?
Lacayo: To begin to answer that question, Latin America needs to be taken on a country-by-country basis. The countries currently exhibiting a healthy appetite for buying business aircraft are Peru, Chile, Ecuador, Uruguay, Paraguay and (until March) Argentina.
Brazil, Colombia, Venezuela and Bolivia are either in political turmoil or have upcoming elections that are impacting those markets.
Overall, there is demand for Business Aviation in Latin America, but for the region to register a significant uptick in buying activity, Brazil and Colombia need to wake up from their current political hangovers.
AvBuyer: What are the preferences for aircraft financing in Latin America?
Lacayo: Depending on the use Brazil will be heavy on both turboprops and jets. Meanwhile Colombia and Argentina tend to be all about jets, while Chile is big on turboprops.
Is there one type of financing that’s more popular than another? Again, it really depends on the country. Loans are popular in Latin America but depending on the country there will either be a withholding tax (i.e. imposition of a tax on a loan with a bank not registered in the country), or deductions will be limited by way of keeping the credits within the country.
Operating leases and finance leases are impossible in Brazil as a result of the current regulations, and in Argentina leases are limited to aircraft that are over six tons (13,440lbs) in weight. As a financier based outside the region, unless the buyer is looking for a loan you have little to no chance of granting a credit.
AvBuyer: How do you see the Latin American aircraft financing market developing over the short- to medium-term?
Lacayo: It all depends on the political climate and whether a business-friendly or left-wing candidate wins. For example, Brazil seems inclined towards a left-wing government at this time, and Colombia held elections this year but avoided a left-wing government.
In Argentina, President Mauricio Macri needs to tread carefully as he does not have majority in the senate (so the threat of the Peronistas aligning against him is present, especially since the peso has devalued close to 100% over the last 10 months).
What needs to happen to help things develop further? To promote an aviation culture, financing must be granted to aviation schools. Unfortunately, these don’t have the financial ability to acquire simulators or aircraft, so exposure to aviation in the region remains limited.
AvBuyer: With an uptick in the used aircraft marketplace now, international financiers may be looking to expand into new markets. What should they keep in mind as they look at prospects in Latin America?
Lacayo: Financiers looking to move into the Latin American markets should consider the following four things:
- If you want to do deals in Latin America, these won’t be done over the phone. You’re going to need a physical presence here.
- Keep an open mind. Buyers in developed economies don’t think like buyers in countries were political stability is in constant flux.
- It is better to amortize faster and earn less than to charge more and loan over longer periods.
- Most buyers in Latin America are either not required to audit, or those that audit do not translate their financials. More importantly there can be a very fine line between reporting the actual size of a company and the worth of the company.
On this last point I highlight the case of a company in Argentina which has massive land holdings dating from the 1930s. If the historical value of the land were converted to today’s value to enhance the balance sheet, the tax bill would drown that company!
As I said, one must keep an open mind as to how business is done within Latin America and seek to understand the business conditions of each country, specifically.
Finally talking to tax attorneys will be critical before generating an offer. Every country has its own regulation that’s subject to change. Financiers and buyers must do their homework if they are to avoid surprises in the financing process.
More information from airfinanceco.com