Michael Buffham discusses the financial benefits of aircraft ownership. He argues that aircraft assets can provide steady returns for both corporations and individuals. While aircraft purchases are complex, involving residual value projections, financing options, and legal documentation, the value of aircraft has increased substantially over the past decade, outperforming other asset classes. Properly navigating the purchase process requires working with an experienced banking partner.

1. MAGAZINE
20 21
Convenience, productivity and security
are usually touted as the main ben-
efits of owning your own private jet or
helicopter. These benefits are invariably
used to offset the financial premium
related to private air travel versus com-
mercial air travel. However, many of
the people I talk to ignore the fact that
private aviation ownership compares
favourably with the cost of commercial
business-class travel. Indeed, as a stra-
tegic investment, aircraft assets
can provide steady returns for corpora-
tions as well as for private individuals.
The global liquidity environment has
encouraged many investors and banks
to look for predictable, stable returns
on traditional assets – assets they
understand. The current circumstances
are likely to lead to an increase in the
deliberate and conscientious reshuffling
of capital towards reliable and modern
assets such as aircraft.
Climbing Asset Values
In the past decade the value of assets
in the aircraft sector has been excel-
lent, making the sector a very attrac-
tive destination for capital investment.
For example, a Gulfstream GV aircraft
purchased in 1999 is worth 110% of the
current retail price of a new production
line model. This is partly as a result of
unsatisfied demand in the sector and
partly because of the long economic life
of aircraft.
Michael Buffham from Lloyds TSB Bank’s Corporate Asset
Finance division discusses the fiscal value of aircraft ownership.
Banking on
Private Jets
by Michael Buffham
Consider aircraft asset values versus
another popular investment asset –
commercial property. Over the past
ten years commercial property capital
values have been seen as a stable asset
class for investment, reaching a peak
of around 14.5% growth year-on-year
by mid-2006.1
However, since the onset
of the credit crunch there has been a
sharp decline in commercial property
capital values – dropping as much as
15% already this year.1
In order to maximise the value of
aircraft ownership each buyer must
evaluate the financing method that
suits them. The buyer must project the
residual value (RV) of the asset and deal
with a host of delivery options that can
impact the long-term value and initial
cost of the aircraft. The purchase of an
aircraft is often a daunting prospect for
any private individual, Chief Financial
Officer or Treasurer. Working with your
bank and with independence from any
specific manufacturer you can deter-
mine which make and model in the
aircraft shopping list sees the great-
est financial benefit based on current
projections.
Getting Residual Value Right
A deep understanding of the industry,
the asset and financial modelling is
required in order to reach the most
accurate RV for any asset. RV also
incorporates the maintenance, design,
type of use and the number of hours
that an aircraft will fly each year. Cor-
porate care can translate to $900,000
(€600,000) in asset value at the end
of the ownership period while interior
design and configuration can impact the
value by up to $1 million (€660,000).
Once the RV has been established the
financing method can be chosen. This
can range from a traditional bank loan
to an operating lease. The financing
route taken by the buyer can answer
questions such as:
• Do I want to pay monthly instal-
ments from a principle? (Fully
amortising hire purchase or a loan
secured on the asset.)
• Do I want to take advantage of the
capital allowances available on
the purchase price of the asset?
(Finance or Operating Lease.)
• Do I want to have the financ-
ing structure ‘off-balance sheet’
through an Operating Lease?
• If I already own an aircraft, do I use
the equity tied up in the existing
aircraft to fund a new purchase?
• Do I need to have title to the aircraft,
or just sole use of it?
Delivery Financing Options
Financing can also be arranged to
complement delivery arrangements. For
instance, pre-delivery period finance is
a way for a potential buyer to receive the
financing package in phases to meet
payments due to the manufacturer on
pre-agreed milestone dates throughout
the construction period of the aircraft.
This method of financing the construc-
tion period effectively means that the
buyer will only ever have to pay inter-
est on the cost incurred at the current
point of construction – that is, when
the aircraft is only half built the buyer
will only be paying interest on the funds
advanced at that point, not the whole
end-price of the asset.
Another equivalent route is to make a
payment on the chosen lending agree-
ment on “Green Delivery” which is when
the aircraft has been delivered in a
‘flyable’ state by the manufacturer. This
would typically account for around 80%
to 85% of the total purchase price of the
aircraft with the balance becoming due
and payable to the manufacturer on the
satisfactory completion of final delivery.
Having navigated successfully with all
of the aforementioned it is more than
likely that there will still be potential
financial issues present at the outset
to the transaction as buyers weigh up
currency payment options – particu-
larly if the aircraft is being purchased
in a non-functional currency.2
Foreign
exchange and interest rate hedging
instruments can become a value-adding
part of the financing solution at this
stage. Financiers will introduce their
risk management experts to structure
suitable hedging arrangements for this
part of the solution.
Financial Benefits
There are clearly financial benefits to
owning aircraft, both for individuals and
for companies. However, the process
of establishing the type of aircraft to
purchase, the financing method, the
delivery programme, the RV and the
service costs must be detailed in order
to assess the true value of the purchase
for the individual client.
Such complexity, in transactions that
can often include up to 100 different
sets of legal documentation, should
only be handled by experienced banking
partners with the resources and experi-
ence committed to execute such com-
plex transactions. Of course, it is up to
the buyer to find one that is trusted and
skilled enough to take them through
this each stage of the process.
Aircraft assets can provide steady
returns for corporations as well as
for private individuals
21
Michael Buffham
1
Source: Investment Property Databank (IPD)
2
A currency that is not normally used by a legal entity (such as a company). Most business jet purchases are
agreed in US dollars. A European company that has no access to their own US dollar reserves would need
to find a finance partner that could trade in that currency to complete the transaction.

2. MAGAZINE
20 21
Convenience, productivity and security
are usually touted as the main ben-
efits of owning your own private jet or
helicopter. These benefits are invariably
used to offset the financial premium
related to private air travel versus com-
mercial air travel. However, many of
the people I talk to ignore the fact that
private aviation ownership compares
favourably with the cost of commercial
business-class travel. Indeed, as a stra-
tegic investment, aircraft assets
can provide steady returns for corpora-
tions as well as for private individuals.
The global liquidity environment has
encouraged many investors and banks
to look for predictable, stable returns
on traditional assets – assets they
understand. The current circumstances
are likely to lead to an increase in the
deliberate and conscientious reshuffling
of capital towards reliable and modern
assets such as aircraft.
Climbing Asset Values
In the past decade the value of assets
in the aircraft sector has been excel-
lent, making the sector a very attrac-
tive destination for capital investment.
For example, a Gulfstream GV aircraft
purchased in 1999 is worth 110% of the
current retail price of a new production
line model. This is partly as a result of
unsatisfied demand in the sector and
partly because of the long economic life
of aircraft.
Michael Buffham from Lloyds TSB Bank’s Corporate Asset
Finance division discusses the fiscal value of aircraft ownership.
Banking on
Private Jets
by Michael Buffham
Consider aircraft asset values versus
another popular investment asset –
commercial property. Over the past
ten years commercial property capital
values have been seen as a stable asset
class for investment, reaching a peak
of around 14.5% growth year-on-year
by mid-2006.1
However, since the onset
of the credit crunch there has been a
sharp decline in commercial property
capital values – dropping as much as
15% already this year.1
In order to maximise the value of
aircraft ownership each buyer must
evaluate the financing method that
suits them. The buyer must project the
residual value (RV) of the asset and deal
with a host of delivery options that can
impact the long-term value and initial
cost of the aircraft. The purchase of an
aircraft is often a daunting prospect for
any private individual, Chief Financial
Officer or Treasurer. Working with your
bank and with independence from any
specific manufacturer you can deter-
mine which make and model in the
aircraft shopping list sees the great-
est financial benefit based on current
projections.
Getting Residual Value Right
A deep understanding of the industry,
the asset and financial modelling is
required in order to reach the most
accurate RV for any asset. RV also
incorporates the maintenance, design,
type of use and the number of hours
that an aircraft will fly each year. Cor-
porate care can translate to $900,000
(€600,000) in asset value at the end
of the ownership period while interior
design and configuration can impact the
value by up to $1 million (€660,000).
Once the RV has been established the
financing method can be chosen. This
can range from a traditional bank loan
to an operating lease. The financing
route taken by the buyer can answer
questions such as:
• Do I want to pay monthly instal-
ments from a principle? (Fully
amortising hire purchase or a loan
secured on the asset.)
• Do I want to take advantage of the
capital allowances available on
the purchase price of the asset?
(Finance or Operating Lease.)
• Do I want to have the financ-
ing structure ‘off-balance sheet’
through an Operating Lease?
• If I already own an aircraft, do I use
the equity tied up in the existing
aircraft to fund a new purchase?
• Do I need to have title to the aircraft,
or just sole use of it?
Delivery Financing Options
Financing can also be arranged to
complement delivery arrangements. For
instance, pre-delivery period finance is
a way for a potential buyer to receive the
financing package in phases to meet
payments due to the manufacturer on
pre-agreed milestone dates throughout
the construction period of the aircraft.
This method of financing the construc-
tion period effectively means that the
buyer will only ever have to pay inter-
est on the cost incurred at the current
point of construction – that is, when
the aircraft is only half built the buyer
will only be paying interest on the funds
advanced at that point, not the whole
end-price of the asset.
Another equivalent route is to make a
payment on the chosen lending agree-
ment on “Green Delivery” which is when
the aircraft has been delivered in a
‘flyable’ state by the manufacturer. This
would typically account for around 80%
to 85% of the total purchase price of the
aircraft with the balance becoming due
and payable to the manufacturer on the
satisfactory completion of final delivery.
Having navigated successfully with all
of the aforementioned it is more than
likely that there will still be potential
financial issues present at the outset
to the transaction as buyers weigh up
currency payment options – particu-
larly if the aircraft is being purchased
in a non-functional currency.2
Foreign
exchange and interest rate hedging
instruments can become a value-adding
part of the financing solution at this
stage. Financiers will introduce their
risk management experts to structure
suitable hedging arrangements for this
part of the solution.
Financial Benefits
There are clearly financial benefits to
owning aircraft, both for individuals and
for companies. However, the process
of establishing the type of aircraft to
purchase, the financing method, the
delivery programme, the RV and the
service costs must be detailed in order
to assess the true value of the purchase
for the individual client.
Such complexity, in transactions that
can often include up to 100 different
sets of legal documentation, should
only be handled by experienced banking
partners with the resources and experi-
ence committed to execute such com-
plex transactions. Of course, it is up to
the buyer to find one that is trusted and
skilled enough to take them through
this each stage of the process.
Aircraft assets can provide steady
returns for corporations as well as
for private individuals
21
Michael Buffham
1
Source: Investment Property Databank (IPD)
2
A currency that is not normally used by a legal entity (such as a company). Most business jet purchases are
agreed in US dollars. A European company that has no access to their own US dollar reserves would need
to find a finance partner that could trade in that currency to complete the transaction.