Interest in business jets as a way to avoid traditional airlines has increased, according to Peter Bullen, Executive Vice President Bank Channel and Clean Energy at Key Equipment Finance.
Bullen was quoted in an article in Business Jet Traveler that highlights how interest in business jets has increased, and the market continues to accelerate.
A growing market
According to the article, the pandemic may have increased the business jet demand because business jets are a way to avoid the airlines and they also provide the buyer an asset.
“Jet prices have increased simply because the number of people wanting to own them, charter them, and purchase shares in them has dramatically increased,” the article notes.
Even in a growing market like this one, lenders need to ask themselves how much the jet will be valued once the loan matures. The article goes on to say that given current market dynamics, that value can be difficult to determine.
Price doesn’t necessarily equal value
According to the article, price points may not be the same as the actual value of the jet. Due to supply and demand, the purchase price may be higher than the actual value of the asset, which leaves lenders with a decision on how much of the purchase price to finance.
Looking at how the loan is structured can also help navigate some of the discrepancy between purchase price and value. The article mentions that banks can reduce the amount of the loan by requiring a larger down payment and adjusting advance rates. Some lenders are also looking into gap financing options that can supplement the difference between the price and value.
Most banks require pre-buy inspections
Since the market is so hot, some buyers are offering to forego inspections, but most banks won’t allow that option. The article mentions that new jets purchased directly from the manufacturer don’t require pre-by inspections, but delivery inspections are still needed.
“Buyers testing the waters with their bank before cutting a deal on an aircraft should understand its expectations in this regard,” the article states. “Where closing quickly is important, some banks have also been open to permitting prebuys to occur after closing, especially if there is a purchase price holdback to cover the cure of discrepancies.”
Even with an uncertain economic outlook, the business jet market has steadily gained ground since the pandemic but the demand could shift soon, and some banks are reporting seeing price corrections in the market.