Following announcements from aircraft
manufacturers regarding the cancellation of purchase orders and job
cuts, it appears that jet manufacturers have taken a double hit
from both the current economy and the heightened public awareness
and scrutiny of corporate excess.
With companies mindful of this scrutiny, the
decision not to purchase or to cancel the purchase order for a
company jet has led to an increase in the use of chartering,
especially in the US where executives are finding it easier to
justify flying privately by leasing ‘someone else’s’ aircraft as a
more economical option.
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The charter market in Europe has always lagged
behind the US, and despite a number of European charterers being
unable to raise funds or halting their chartering services for the
short term, we could also now start to see an increase in demand in
Europe. As recently reported in the Financial Times, European
private jet start-up Jetbird is aiming to begin commercial
operations in September of this year – could this signal the start
of a revival in Europe?
With demand increasing, lessors are naturally
going to be looking to source finance for the purchase of new or
second-hand aircraft. Sourcing finance is not impossible in the
current market, however financing requirements are now much
stricter with banks looking for lower loan to value ratios, higher
margins and requiring more equity to be put in by the borrower.
For existing facilities, we are seeing
borrowers wishing to either extend the financing term and/or to
renegotiate event of default provisions, with the banks using this
as an opportunity to tighten up existing terms: this could be
something very simple from increasing the margin and commitment fee
to seeking to strengthen the financial covenants of the
borrower.
The corporate jet market is still very
uncertain. However, there are indications that there may be a
revival in the leasing market in Europe as well as the US towards
the back end of this year.
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By GlobalDataMaynard McLaren
and Simon Spellsare associates at the law firm
Berwin Leighton Paisner
