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Making Aircraft Financing Accessible

The face of the aircraft financing industry may be set to change with one 'disruptive innovation', notes Tony Kioussis. But how will it improve the sector?

Tony Kioussis   |   26th July 2017
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Tony Kioussis Tony Kioussis

Tony Kioussis is President of Asset Insight. The company provides audit and valuation services...
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‘Disruptive innovation’ can lead to new business opportunities

The face of the aircraft financing industry may be set to change with one 'disruptive innovation', notes Tony Kioussis. But just how will it improve the sector for buyers and service providers?

 

The term ‘disruptive technology’ was introduced by Clayton M. Christensen in 1995, who later replaced the term with ‘disruptive innovation’ recognizing that it is the business model that the technology enables that creates the disruptive impact.

If successful, disruptive innovations can create new markets, disrupt existing ones, and even dislodge the market leaders.

Examples of disruptive innovation range far and wide, from the mass-produced, and lower-priced, Ford Model T introduced in 1908, that altered the horse-drawn vehicle transportation market, to the introduction of various websites such as Travelocity, Expedia, and Priceline, which disrupted the travel industry, helped airlines triple passenger revenue miles in five years, and permanently changed the value of travel agents.

While new technologies can be disruptive, they can also be powerful tools for the community they serve.

Take, for example, the number of web-based, automated charter brokerage firms that have entered the Business Aviation charter market in recent years, such as Stratajet, Stellar and Privatefly, to name a few.

While the jury may still be deliberating on which entity has designed the better ‘mousetrap’, there is no question that such innovators have accelerated and simplified the charter booking process, helped decrease the number of empty legs, improved market transparency, and created new clients comprised of wealthy individuals wishing to remain anonymous.

Consider the disruption caused by Asset Insight to the aircraft acquisitions and sales process through its introduction of a web-based, maintenance grading system able to translate complex technical data into financial information and a simple, comparative score – much like a credit score. In so doing, transparency is brought to buyers and sellers, at a nominal cost, allowing them to accurately discern between what used to be a ‘good’ or ‘bad’ aircraft.

 

Aircraft Financing

One new and potentially disruptive innovator, FlyFunder, recently entered the aircraft financing space, seeking to connect aircraft buyers with finance providers, and make it easier to locate a better deal. In addition, service providers can identify more transactions meeting their requirements.

The opportunity within this market sector is significant with 1,243 new turbine-powered, GA aircraft worth more than $20bn delivered in 2016 (per GAMA), and 3,191 used turbine aircraft sales closing globally in 2016 (per Amstat).

While one might argue that people seeking to finance their aircraft already know entities providing such services, Paul Sykes, the company’s Director and co-founder, sees it differently.

“If you’re seeking financing for anything else in your life, such as real estate, a car, or various insurance products, you would locate your best options using comparison websites.”

 

Credit Risk

Entities offering aircraft financing typically have very specific appetites for credit risk, asset types, deal sizes and jurisdiction. Some offer only highly structured products across the lease and loan spectrum while others are willing to discuss a solution customized to the customer’s need.

With institutions actively entering and exiting the various aircraft financing sectors, innovations like FlyFunder can offer buyers the opportunity to anonymously announce their aircraft financing needs to the market, and provide financiers opportunity to introduce themselves.

Although people will always call on their existing contacts for financing, this kind of disruptive innovation – through which everyone benefits – can help bring fragmented sectors of the General Aviation industry together and allow business to be conducted more efficiently.

 


Read more about: Business Aircraft Finance | Buying Jets

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