Productivity | Strategy | Profitability
Productivity | Strategy | Profitability
Financing Your Private Jet
Buying your own private jet is definitely among the highest items of luxury that a person can afford, but the absolute freedom of movement that comes with it, also carries many challenges. If you are considering financing your personal aircraft, you should take note of some key considerations to keep in mind before taking your first steps toward the purchase, says Thomas Hughes.
It might seem like a luxury that a person can technically live without, but at some point in your career - when you realise that you are spending more time between airports around the globe than in the living room of your own home - buying a private jet may actually be the smartest option.
If you are just starting out in the domain, experts advise you to get familiar with the industry by first renting a plane, and, if available in the part of the world where you live, you can actually use the jet annually for a certain number of paid flight hours. Whether you’re thinking about renting or buying your private aircraft, this purchase is by all means a great opportunity to spend your hard-earned money. Let’s take a look at the financing options and the process behind...
TRY BEFORE YOU BUY
First things first, it’s a good practice to “test drive” a few of the models that you’re considering, so that you can get a better feel of different planes on the market before deciding which one you would like to finance. Industry players claim that now the priority in the market remains with the buyers, and after the 2009 crisis, the market became completely flooded with various models for almost every taste and budget. Right now, however, with the airline industry heavily affected by the lockdowns of the COVID-19 pandemic, there are new and unprecedented circumstances in the industry.
The airline economies can be unstable and particularly vulnerable to global uncertainties such as oil prices, world trade and international tensions. In April, for example, the intensity of global aviation traffic decreased by 80% due to the COVID-19 lockdowns. With the depth and duration of the crisis still unclear, the industry faces the need to defer payments under aircraft lease agreements to ease the financial strain on airlines. On the other hand, more and more wealthy individuals have chosen to opt for private jets as ways of avoiding public airline travel, and while the aviation industry is inevitably shrinking, this new trend may yield interesting results in a post-pandemic economy.
So, aside from avoiding coronavirus in airports, do you really need a private jet? At what point does it make economic sense to own a jet that costs at least $ 4-5 million? Of course, no one will tell you the exact number, but experts agree that if you fly more than 300 hours in a calendar year, then buying your own ”wings” will be financially justified. In all other cases, it will be more expedient to rent a private jet or purchase a fraction of a plane as shared property.
One of the key benefits of owning your own aircraft is that you can customise it to suit your needs and tastes. If even in the air you do not want to waste time and want to work, then modern facilities allow you to organise a conference room on board. But if the flight is the only opportunity to rest and sleep, then buying and installing a spacious bed with a comfortable mattress, should not cause any difficulties. On top of that, renting or chartering an airplane allows you to use a variety of jets, so you can try out a few and figure out which one you like best.
Now, how do you buy a private jet and how do you finance it? If you have decided to acquire your own airplane, there are two main ways to do this. If you have done some preliminary research and decided which aircraft you want to buy, then you can contact the manufacturer directly. However, if you are new to the world of the aviation market, it is worth bringing in a professional consultant or broker to help with a lengthy or technically complex process.
THE RANGE OF OPTIONS
Qualified brokers can find and negotiate the best deal; on top of that, they will also help you save time and money on the deal. An expert tip to consider: brokers have tremendous experience, and often education in the field of aviation technology, which allows them to determine the adequacy of the asking prices in accordance with the quality of the jet. Do not neglect the help of professionals.
What type of aircraft do you choose? There are three main types of business jets: light, medium and heavy. Light or small planes can fly about 1,852 km and can carry up to six passengers. Medium planes have a range of 2,700-3,700 km and can accommodate 8-10 passengers. A heavy private jet can fly 4,600-6,500 km and carry 12-16 passengers on board. Choose a plane based on the range of flights you need and the number of guests who will be traveling with you. Obviously, a jet with the best features is required for the longest flights abroad.
One of the most suitable private jets, in the Embraer lineup for example, can be considered the Legacy 650. At the Singapore air show, it was recognised as the best representative of the middle class. (Jackie Chan owns one of those!) One of the smallest short-range aircraft is the Phenom 100. This is an example of an aircraft that could become popular with people doing internal business in large countries such as Russia, China, India, Indonesia and the United States.
It is advisable to purchase an airplane where there will be more seats than the initially expected number of guests - this is necessary to ensure the comfort of passengers during the longest and most tiresome flights. Depending on your needs, almost any manufacturer will be able to offer a suitable option for you. You can completely customise your own aircraft. You can even bring in your own designers to decorate the interior to your taste, but keep in mind that they will have to work in accordance with the established safety specifications when choosing materials.
Everything from colours and carpets to lighting and cabinetry can be personalised to your taste. In addition to the interior design, the aircraft can be equipped with entertainment systems and wireless Wi-Fi. Manufacturers often offer in-house designers to help refit a private jet, but wealthy buyers tend to bring in their own specialists.
FINANCING YOUR AIRCRAFT
Now, on to financing...There are many companies and banks that specialise in financing aircraft purchases. As is the case with most loans, a company or individual must prove their financial soundness and provide some form of guarantee to repay the debt. Lenders usually have a specific niche that they finance. Some organisations offer higher amounts, some finance only the purchase of new private jets, and in some cases it will be possible to obtain a loan only for a plane that will be based in the country where the lending institution is located. All in all, this can be a rather complicated and troublesome process. Find a good broker: this company or person will help you find the best option for financing!
How much should you expect to dish out? The cost of a private jet will vary depending on its size, age and service history. Prices for private business jets have dropped significantly as a result of the global lockdowns (as it often is, in difficult times, luxury goods come under a brunt.) Most of the aircraft on the market can range in price anywhere from $3 million to $10 million.
If you don’t mind a used model, you can buy an old plane for less than a million dollars. At the same time, of course, one cannot discount the issue of the necessary technical modernisation, which, at times, can exceed the price of the plane itself. Otherwise, you simply will not be able to obtain a flight permit.
There are also other expenses to look out for. Here is a non-exhaustive list of some things that will give you an idea of the true costs of owning a private jet: annual insurance; rent of a place in the hangar; maintenance and service of the liner; salaries and bonuses for crew members; boarding fees, service charges and even navigation fees; nutrition; fuel, etc.
Now that you’ve begun financing your jet, how do you manage your investment? Ideally, professional management companies will deal with all aspects of aircraft ownership. They support the aircraft according to the manufacturer’s requirements and also deal with the hiring of pilots. Some executives prefer to charter a private jet rather than buy it to help offset a range of maintenance costs, but one downside to renting your aircraft is that every hour you spend in the air will bring it closer to its next maintenance. EG