Charter Market: Banks, Repo and Charter

 - October 26, 2010, 11:04 AM

In the wake of the economic downturn, business boomed for aircraft repo specialists, who seized aircraft from owners delinquent on their loans. Yet repos have had no effect on the charter market, which depends on privately owned aircraft for the majority of its lift. Why no ripple effect? Many banks are reluctant to make loans on aircraft used for charter in the first place, because of the increased wear and tear on the asset, and concern that an owner could be depending on charter revenue to make payments.

“Our client base, both corporate and individual, rarely uses its aircraft for supplemental charter,” said Michael Amalfitano, senior managing director of Banc of America Leasing–global corporate aircraft finance. “This is to maintain the appropriate tax treatment of the business use of the aircraft.”

If a strapped owner considers making his aircraft available for charter, the terms of loans mandate informing the bank of any change in an aircraft’s status, such as transferring operational control as is done under a Part 135 certificate, likely inhibiting bank-financed airplanes from joining the charter fleet. But, said one banker who requested anonymity, “If the truth be known, if somebody does [put his aircraft on a charter certificate], he probably wouldn’t tell us.”