Citi helps buyers finance their business jets

May 24, 2007
Aviation Financing

The boom in demand for business jets is inevitably pushing prices skyward, and Citi Private Bank is here (Booth No. 858) to help would-be buyers finance their airplanes.

Mary Schwartz, Citi’s aircraft finance director, said here on Monday that sales of new aircraft amounted to $13 billion in 2005. Transactions involving used aircraft were worth another $30 billion, and the figures for last year were better still. This year seems to be a continuation of the upward trend, and while analysts are predicting a softening in the global economy in 2009, their forecasts point to an early resumption of growth.

The result, Schwartz said, is that “if you order a large business jet today you can’t get delivery until 2012.” Delivery positions for the big Falcons, the Gulfstream G550 and the Global Express XRS can be sold at premiums of as much as $10 million, equivalent to around 25 percent of the airplane’s value.

Pre-owned values are also soaring. “One of our clients paid $34 million for an airplane, owned it for seven years and then sold it for $38.5 million,” Schwartz said. “The market is very, very strong. There are so few of the nicer aircraft for sale that they are snapped up as soon as they hit the market.”

Citi focuses on lending. “We structure loans to match the client’s needs, so we can help with progress payments that may be due during the build cycle,” she said. “We can also provide interest-only loans where there is a low level of amortization and a big balloon at the end.” The latter structure resembles a lease in terms of the payments due, the essential difference being that the client, rather than the lender, owns the asset.

 Loans, Schwartz said, are less restrictive than leases as they can be terminated at any time. “Leasing is a more restrictive approach as it allows only a specific time during which it can be terminated, and usually there are tax authority rules that that allow early termination only at certain points. Most of our clients prefer loans to leases because they are easy to get in and out of, and usually they want to turn over their aircraft after five years.”

Citi also has in-house experts who can provide a lot of specialist advice. “If a client comes to us with a profile of his travel needs we can explain the different options, which is especially helpful to new clients,” she added. “Then we can point him in the direction of a broker to handle the acquisition.”

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