Owning a private jet opens the door to travel free from crowded terminals, long security lines and inflexible schedules. However, financing a jet can feel like a daunting task, and it can be quite challenging for those who don’t understand their options.
This article explains the most common private jet financing options, providing anyone interested in purchasing an aircraft with a solid foundation for conversations with a lender or financing partner.
Important note: The information in this article does not constitute financial advice. Every buyer’s situation is unique, so it is critical to talk with your financial advisor before making any decisions about private jet financing.
3 Methods Buyers Use To Finance a Private Jet Purchase
A private jet purchase—like any significant acquisition—is a complex process. Jets are high-value, specialized assets, and buying one requires market research, extensive due diligence and operational considerations. However, once you have 1) engaged with an advocate and advisor like Axiom and 2) determined how you will fund the purchase, the way forward becomes much clearer.
The three most common methods for financing a private jet purchase are described below.
Cash purchase
Unsurprisingly, if you have the financial resources to purchase a private jet, this approach is the most straightforward and provides multiple benefits. One is that you may get access to your new aircraft faster. Another is that you avoid interest payments, meaning you might ultimately pay less for the asset.
However, beyond the requirement to have adequate capital available, there are other potential downsides to this private jet purchase method. Most notably, if you have other areas where your available funds could benefit you or your business, putting a large sum toward a private jet purchase may not be the most strategic use of your funds.
Loan
Many owners finance their private jet purchases with loans. There are two primary types of loans: business and asset-based loans. Buyers can obtain a business loan through a bank or other financial institution. It requires a high net worth or a successful business and might require that the aircraft be used as collateral. An asset-based loan for acquiring a private jet is centered on the value of the aircraft.
Leasing
While not “ownership” in the standard sense, leasing is another common way to get ongoing access to a private jet. There are two main lease options: traditional lease and synthetic lease. There are obvious accounting and ownership exposure advantages to a lease. A synthetic lease is most often used as a method for not having the aircraft on the corporate balance sheet but making you the owner at the end of the lease. A traditional lease is most often used as a method to avoid future value loss of the asset.
In either case, you work with a trusted financial institution to agree to purchase the identified aircraft and often have already negotiated a lease. As the lessee, you are still responsible for the operations, operating costs, insurance and maintenance.
Private Jet Financing: Keeping the 5 Cs in Mind
If you intend to finance your private jet purchase with a loan, you will need to meet lender criteria that are commonly referred to as the 5 Cs of creditworthiness:
- Character. This refers to multiple characteristics, including your credit history, payment history, outstanding debt and any previous defaults. The lender may also consider your reputation, financial stability and experience owning or charting aircraft.
- Capacity. What is your ability to repay the loan? This assessment considers factors like having sufficient cash flow to cover your loan payments and debt-to-income ratio.
- Capital. The lender will look at your net worth or corporate balance sheet, including assets like real estate and investments. The amount of your down payment will also be a factor in securing a loan, as will any plans you have for capital investments that will impact the aircraft’s future value.
- Collateral. In many cases, the aircraft you are purchasing is collateral for the loan, but other assets can also serve that purpose. When considering collateral, lenders determine the loan-to-value (LTV) ratio, which is the loan amount compared to the aircraft’s value. A lower LTV ratio typically indicates a lower risk for the lender.
- Conditions. A lender will assess the purpose of the loan. Will you use the aircraft for personal trips, business travel, charter operations or some combination of these? They will also consider the prevailing economic conditions, such as interest rates and market trends. The type, age and condition of the aircraft can also affect whether a loan is given and the terms.
Finding the Right Financing Partner
Choosing a reputable and experienced financing partner is crucial. It is best to work with a lender specializing in aviation finance, particularly one offering competitive rates, flexible terms and personalized service. In the same way that they assess your suitability, you should consider their industry knowledge, customer service and ability to tailor solutions to your needs.
Get Expert Guidance on Private Jet Purchases From Axiom
Having financing lined up is essential for purchasing a private jet. However, it is equally important to have a trusted firm representing your interests. At Axiom Aviation, we have more than 90 years of combined experience advocating for stakeholders and helping them achieve their aviation goals. Axiom has long-established relationships with financial institutions specializing in aircraft financing and aircraft lease options. With our team behind you and financing arranged, you have positioned yourself for a smooth, efficient purchase transaction.
Contact Axiom Aviation to learn more about our sales and brokerage, acquisition, project management and consulting services.