Latin America Leads As Aircraft Financing Flows Again
As the global economy in general, and business aviation in particular, begins to stabilize, so the squeeze on aircraft financing is beginning to relax, albeit with an element of conservatism. That was the message from speakers at the 5th Business Aviation in Latin America summit held here at LABACE yesterday. A range of financial issues was covered during the summit, as well as other key issues such as managing flight clearance risk in developing nations and pilot shortages in Latin America.
Since the financial collapse in 2008, business aviation in the U.S. and Europe slumped, but the developing world helped take up some of the slack. Latin America, led by Brazil and Mexico, has led the way, although, as Don Walsh, director of Guggenheim Partners Business Aviation Investments, noted, it is the lighter aircraft that continue to dominate the market. That is opposite to other regions, where it is the large-cabin types that have shown the most growth.
Cautious growth in business aviation has mirrored growing confidence in the general economy. In 2008 it was virtually impossible to get financing for aircraft acquisition other than through captive finance companies, but that is not the case now. According to Juan Escalante, v-p Latin America for AirFinance, it was local banks that led the way as they were cash-rich and able to deal in local currencies. International banks have now cautiously re-entered the market, although they are less willing to undertake smaller loans.
In his view, private-equity leasing companies have become popular, especially supporting the helicopter market, where operators are looking for near-term deliveries to cover immediate requirements. Finally, export credit agencies also provide attractive financing in their aim of promoting national employment but, according to Escalante, they can sometimes take a long time to finalize contracts.
“Latin America is still a great place for business,” asserted Escalante, but he noted that there are signs that the regional economy is slowing down. Another challenge he outlined is the length of time needed to do business, adding that, “bureaucracy is part of the culture, and it’s not going to get any better.” Airport infrastructure is another potential block in the road to expansion, although he noted that, “the development of privately owned airports should close the gap.”
Another element that should improve aircraft financing is wider implementation of the Cape Town Convention. This was agreed to in November 2001 as a means of providing a means of enforcing lender’s rights on an international basis, and thus increasing lender’s confidence in business aviation deals. David Chamberlain, an aviation solicitor with Kennedys, noted that, “Brazil has just joined up, and there are some teething problems.” However, there is optimism that signing up to the Cape Town Convention should make aircraft financing in Brazil more attractive.