With financing for business aircraft still far from easy to secure, ExecuJet Aviation has stepped up its efforts to help get more people airborne through its SimplyFly Finance program. The plan is to offer fast-access, simplified nonrecourse financing in the shape of five-year loans or leases for up to 70 percent of the value of an aircraft worth at least $20 million and no more than five years old. An initial fund of $400 million provided by ExecuJet’s main shareholder Dermot Desmond is available to support the program.
The key differentiator for SimplyFly, and the reason why approval for funds happens far quicker and with less fuss than through banks, is that ExecuJet retains direct control of the asset as the operator of the aircraft under a management contract. Essentially, the client has to commit to placing the aircraft under ExecuJet’s management and in return ExecuJet offers a fast-tracked approval process and streamlined terms and conditions.
According to David Nolan, ExecuJet’s aircraft finance manager, the Swiss-based company has refined SimplyFly based on market feedback demanding an even more simple and direct product. To a large degree, the simplicity comes from the fact that by managing the aircraft ExecuJet has no concerns about the general care, maintenance and return condition of the aircraft. By contrast, traditional finance providers don’t have this operational control and so feel compelled to go through more complex approval processes.
Lease or Loan
The SimplyFly funding can be structured as a lease or a loan. At the end of the standard five-year term, ExecuJet will remarket the aircraft, with the client having the first option to buy it fully at that point.
Over the course of the term, the client will have paid off the amount funded for the aircraft purchase down to 40 percent of the initial sum. When the aircraft is sold, the amount raised first goes to paying off this “balloon” amount and then, assuming enough cash is raised, the client is refunded the 30-percent deposit they paid.
The other key differentiator with SimplyFly is that, unlike banks, ExecuJet is interested only in an aviation-based relationship with its clients. Banks and finance companies commonly require lenders to put up other collateral to support the loan and/or place other assets under their management. Essentially, the aircraft loan is bait to lure clients for their wealth management operations.
Even when they are fully able to do so, many prospective buyers simply don’t want to put up alternative collateral or commit other assets to secure a loan–often because they believe they have better ways to use their resources than to hand them over to private wealth managers. At 7.5 percent, the SimplyFly interest rate is unlikely to be the lowest that a lender could get even in today’s constricted market, but with it comes “freedom of capital,” meaning that the lenders can do what they like with the rest of their money. Other lenders may be trading off lower interest rates against other fees chargeable to the client.
“The rate that we can offer is very competitive when you consider it is fixed for the term, you don’t have to give any guarantees or additional collateral, nor do you have to commit assets to a wealth management program and, indeed, pay fees on the capital committed,” Nolan told AIN.
The Cost Factor
But this begs the question as to whether aircraft owners potentially stand to get less competitive management terms under SimplyFly because they are not free to negotiate terms with operators other than ExecuJet. The company insists that clients are still free to negotiate the exact terms of their management contracts prior to committing to the loan or lease contract. “We pride ourselves on being transparent in our dealings with clients,” said the company, adding that its management terms are standard for the industry.
After the monthly management fee is paid, the direct operating costs for the aircraft will depend on which region the aircraft are operated in, with ExecuJet holding multiple air operators certificates around the world. All costs are rebilled directly to clients without any markup and ExecuJet offers clients the benefit of discounted insurance and fuel, based on its buying power as a large fleet operator.
For aircraft made available for charter to others under ExecuJet’s AOC, the operator gets a fixed percentage of the charter price with the rest going to the owner, once costs are accounted for. But SimplyFly owners can opt to have their aircraft purely for private use and in either case ExecuJet does not dictate where the aircraft has to be based.
ExecuJet already has a number of finance proposals with prospective buyers and is in the process of negotiating what it hopes will be its first SimplyFly contracts. It anticipates announcing its first deals in the near future.
According to Nolan, the financial community is still very cautious about lending money for aircraft purchase. “The memory is still fresh from plummeting aircraft values, when some institutions inappropriately relied on aircraft values [holding up],” he concluded. “Many got the loan to values wrong. I can’t see that [caution] changing in the short term.”