A fund of ideas
Finding funding for a new private jet is increasingly difficult, even in the Middle East. Liz Moscrop looks at what's on offer.

Financing business jet acquisitions has become trickier since the market dipped in 2008. Even clients in regions that have traditionally been able to access borrowing have been struggling, according to industry experts.
The Middle East is no different. With the exception of ultra high net worth individuals (UHNWIs) banks have been reluctant to loan money without stringent requirements.
There is, however, a silver lining. Some lenders are willing to take a risk on strong business propositions. Earlier this year the Corporate Jet Investor (CJI) company held an inaugural awards ceremony at its annual conference to honour financiers who have showed a willingness to risk funds to support the industry. Investec and Mubadala GE Capital took the Middle East & African Financier (joint award), with Barclays, Cessna Finance Corporation, and Rand Merchant Bank taking ‘highly commended’ tickets for the region. Private banks like Credit Suisse, UBS, and Citi are also active EMEA players.
Mubadala GE Capital only launched in 2010 but had GE and the sovereign wealth fund of Abu Dhabi as its main investors. Alasdair Whyte, CJI’s CEO said: “It was hardly a start-up. Equipment leasing is one of the Abu Dhabi specialist finance company’s core divisions and corporate aircraft finance is an important part of the division.”
He pointed out that much of the bank’s focus is on the big business jet markets of United Arab Emirates, Saudi Arabia and other Gulf countries. However, Mubadala GE Capital Corporate Aircraft Finance is increasingly active in Turkey and Africa.
Although the team is called Corporate Aircraft Finance, it offers financing to any user of business aircraft, including high net worth individuals, governments and others. It does not have a maximum deal size but prefers deals larger than $5 million.
Like GE Corporate Aircraft Finance, Mubadala offers a range of structures including loans, finance leases, operating leases. It can offer Islamic finance compliant structures but does not have a Sharia Scholar Board.
There is huge potential for private aviation in the EMEA region. Speaking at the CJI conference Louis Pinto, CFO of fractional ownership provider Netjets, said that Africa is fast becoming a contender. He said: “A billionaire is being born in Africa each day.”
He also said that the Middle East still showed a great deal of potential and Netjets’ business in the Middle East grew by 40% last year, particularly in Qatar and Kuwait.
To counteract the difficulties customers are experiencing in raising finance, Netjets Europe has introduced a new product – direct financing. The company accepts a deposit of 25% on a fractional aircraft share and loans start at 5% interest. Netjets will fund the product itself and offer a corporate guarantee on the aircraft.
Pinto explained: “This is our response to banks leaving the lending market. We aim to fill the gap between leasing and acquisition programmes.”
Hawker Beechcraft’s EMEA president Sean McGeough took a dourer stance. He reckons that Hawker “has never lost a deal, but financing is not as available as it should be”. According to McGeough, regions where more financing would be useful include Africa. He said: “UHNWIs are growing, there. Nigeria has been good. More banks should be looking at Africa.”
The African corporate jet market is driven by telecoms, mining, oil and gas and growth is coming from UHNWI, entrepreneurs, corporates, and heads of state.
Wouter du Preez of the First Rand Bank indicated that the continent could take up to 25 jets a year, particularly long-range and ultra-long-range. Investec’s head of aviation finance for Africa, Melanie Humphries, agreed, saying: “Manufacturers support that prediction. Bombardier forecasts the African fleet doubling in the next then years. It is old so needs replacing.”
She continued: “You need to move as much country risk as possible. For example, in Nigeria you want to have documentation in English law and agreements governed by arbitration in London. South Africa, Nigeria and Angola count for 90% of the finance market.”
For smaller aircraft both Investec and Rand run special lending divisions. Humphries said: “It is financially not viable to structure small aircraft deals in the African market due to the legal fees.”
Marwan Khalek, Gama Aviation’s CEO, cited reasons why there may be reluctance to finance aircraft in the Gulf. He said: “There are pressures on margins from an aircraft management point of view. Charter business has dropped too. At one point it was down to 50% of pre crash levels.” However, he believes the business is sustainable, with grey charter “a thorn in the side still”.
London Executive Aviation’s chief executive, Patrick Margetson Rushmore, added: “Grey charter is a big issue for lenders as they could lose their asset, and they pay great attention to the management of the aircraft. If a flight goes down it is not insured under those circumstances.” Khalek agreed, saying: “If you found your client engaging in illegal activity then you wouldn’t lend. It is a serious problem for the industry.”
Jim Crowley, MD Guggenheim Partners, pointed out that aircraft prices have dropped: “Loan to value has changed and is down to 70% in some cases. Credit analysis is different today. Can the client service the debt? We investigate more thoroughly than before. We ask what kind of liquidity does the client have in good and bad times?”
Currency fluctuation can also be problematic. Banks are happy to loan in US dollars but local currencies can be volatile. Lenders also look at the history of an aircraft, missed periods of maintenance, and which management company has handled the asset.
Ex Ocean Sky owners Kurosh Tehranchian and Niki Rokni have another solution. The pair established Axon Aviation last year to plug the gap in the financing market by sourcing and offering aircraft for lease. Tehranchian said: “We locate aircraft mainly in the large-cabin sector, including Boeing Business Jet, Airbus ACJ, Bombardier Challenger and Global Express, Gulfstream V and 550, Falcon 900EX and Embraer Legacy types.”
Axon specialises in principal-to-principal transactions and always on a strictly exclusive, mandated basis. The company has recently structured lease transactions on a Bombardier Global 5000, Challenger 605, two Challenger 604s, a Gulfstream IVSP, a Falcon 2000EX and a Challenger 300. It also holds signed mandates for the lease of a further nine large-cabin aircraft, which are required by April 2012.
Rokni said: “As the global business aviation sector continues to recover from the economic slowdown of 2008, we see leasing emerge as an attractive and compelling financial strategy for business jet buyers.”
She added: “The fundamental reasons are quite simple. For buyers, leasing reduces pricing risk and avoids large capital outlays. For aircraft owners, leasing delivers a steady revenue stream, irrespective of other market forces.”
According to Tehranchian, leasing is also an attractive option for aircraft owners who wish to avoid risk, while maintaining the consistency of service associated with ownership. He said that it is also a compelling proposition for buyers who would otherwise have to wait several years before delivery of a new aircraft.
Prospective owners need not despair, according to the banks. Guggenheim’s Crowley remains optimistic about the prospects for people looking to finance an aircraft purchase. He said: “Credits are improving. The high-end segment credit side has a strong link to emerging markets and these are currently performing better. It is business as usual for some banks.”
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