NBAA Convention News

Citigroup’s bizav expertise grows

 - November 13, 2006, 10:49 AM

When Mary Schwartz, director of aircraft finance for Citigroup (Booth No. 1058), was given the task of forming the New York-based bank’s aircraft finance department six years ago, its portfolio of business airplanes consisted of just a few. Now celebrating its third year exhibiting at the NBAA Convention, the department can boast a tenfold increase in the number of whole aircraft and fractional shares currently financed since its formation, while more than quadrupling the portfolio in terms of dollar amount.

Although Schwartz acknowledges the recent upturn in business aircraft sales has positively affected financial services in general, she credits much of her department’s success to an “extremely knowledgeable” staff, which recently expanded from three to five full-time employees.

“We probably have one of the strongest aircraft evaluation groups in the industry,” Schwartz told NBAA Convention News. “We have two pilots in the group, and two of my transactors are strong in [aircraft] finance, so we have strong aircraft andfinancial backgrounds.”

The department’s strengthening expertise allows its staff to advise clients on the type of aircraft to purchase, or whether a fractional share, jet card or even chartering might better suit the client’s needs. “We have the fiduciary responsibility to our clients so we give them the best advice we possibly can, whether it means losing the deal or not.” Schwartz said.

Citigroup’s financial background provides experience in a number of transaction types, including fixed- and variable-rate loans, lines of credit and even interest rate swaps, where debtors may trade payments on a low-interest-rate fixed loan, for example, for payments on a higher rate, but more flexible, variable loan without refinancing the actual purchase. Schwartz said variable-rate or “floating” loans are often advantageous for aircraft buyers, despite the chance of paying a higher interest rate over the course of the loan, because it allows buyers to terminate the loan early without penalty.

“If you have a fixed-rate [loan], you are usually locked into a large prepayment penalty because the bank has also borrowed that money at a specific rate,” she said.
“If you terminate early, you have to pay a penalty to make up the interest that [the bank] must pay. With a floater, we don’t have to lock in the rate, so it affords a lot of flexibility, especially since most people don’t keep their aircraft for more than three to five years.”

Schwartz said that although lines of credit are most often used to finance fractional shares, jet cards and progress payments on new aircraft, some buyers of small aircraft find lines of credit advantageous due to less strenuous documentation requirements. For instance, when the aircraft is purchased through a line of credit, the bank does not have to file lien paperwork with the FAA or international registries.

The process for financing fractional shares is also less complicated than financing an entire aircraft, according to Schwartz. “The reporting is a little easier, and since the transaction size is usually between $500,000 and $1.5 million, we don’t require as many covenants in the documentation, which streamlines the process.”

Although the majority of aircraft transactions still occur in the U.S., Schwartz said Citigroup’s reach has allowed the aircraft finance department to extend its business to overseas clients. “We are a global product,” she said. “Not too many financial institutions have the reach of Citigroup. We’re doing transactions in Hong Kong, Australia, and Europe, as well as in the U.S.”