Commercial Aircraft financing is the financing or the sourcing of funds done in order to purchase and operate an aircraft. This is however complex regarding the fact that aircrafts are highly expensive and requires great deal of caution before investing or taking liability. There are three types schemes involved in a commercial aircraft financing and they are secured lending, finance leasing and operating leasing. We shall discuss about all of these in this article.
Secured lending is the most common type of loan scheme in any form of financing where the moneylender has a direct dealing with the borrower and hence it is also called as direct lending. But in this case, it is quite different. The commercial aircrafts are very expensive and a moneylender will not risk himself into paying the huge sum all alone and hence he adds a security interest along with the direct lending. A security interest is a bond or a mortgage that ensures that the borrower pays on time and in the event of his non-payment the aircraft shall be seized from the borrower by the moneylender. However the option of a security interests wrests in the hands of the moneylender and if he chooses not to impose this on his borrower, he can go on with it. Hence it is appropriate to say that security lending is a direct lending but a direct lending is not a security lending. But in most cases a security interest is always signed with the borrower.
Now let us come to the next scheme available in commercial aircraft financing i.e. finances leasing. Finance leasing is quite a cool idea in terms of the benefits for the operator the aircraft. For example, an aircraft operator might not afford the aircraft and seek the help of the financial institutions offering a finance leasing scheme in aircraft financing. So, the operator can use the aircraft for until the lease period while he pays a chunk of the profit gained from that aircraft until the lease expires. Once the lease expires, the operator has the option of either purchasing it or leaving it as such. But in most cases the ownership of the aircraft is vested in the hands of the operator once the lease expires.
The operating leasing type of scheme is another very good option in the case of aircraft finance. It involves short term lease periods while the operator runs the aircraft and takes a portion of the profit as well and the rest is given to the finance company. In this type of financing the aircraft has to be returned to the finance company (the original owner).