Three quarters of world’s private jets at risk of failing to secure financing

posted on 16th July 2019 by William Hayes

Corporate aviation finance specialist Shearwater Aero Capital has warned that as many as 3,500 older jets worldwide could face a struggle to obtain new financing.

The finance company, which has provided $100 million (£80 million) asset-based loans on aircraft since its launch in 2014, estimates that $10 billion could be needed to finance these jets once their existing loans and leases expire.

“Most aircraft are financed in one way or another but as their loans or leases end, mainstream banks are becoming increasingly unwilling to renew financing,” said Chris Miller, Managing Partner, Shearwater Aero Capital.

“This is because of their inability to predict an aircraft’s value accurately as tracking this is not their expertise, and it’s often seen as too time consuming.”

Shearwater say banks are reluctant to finance older jets – especially those over 10 years of age –  because they believe it represents a higher risk than simply focusing on newer ones.

74 per cent of the world’s private jets are at least 10 years old, while 55 per cent are 15 years or older, and some 28 per cent are over 25 years old.

Research undertaken by Shearwater shows 67 per cent of professionals in the business aviation industry believe it is difficult to secure financing for jets over 10 years of age, while 34 per cent expect this to become even harder over the next two years.

“In terms of their desire to focus on funding newer aircraft, although they may believe they are reducing their risk, they are in fact exposing themselves to potentially higher market fluctuations and speculation,” said Miller.

“This is because new models can sometimes be viewed as ‘in fashion’ and command a premium, compared to used aircraft that have normalized in their resale value.”