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So Now You Have Decided to Purchase an Aircraft?

 

After reviewing your aircraft usage, organizational structure & financial status, along with consideration for aircraft leasing and air charter, you have concluded that purchasing is your best option.

So what's the next step... well you now need to consider what purchasing options are available and which one is right for you, Outright or Lease Purchase. Next we will briefly discus the main options of both Outright and Lease Purchase. Choosing the incorrect finance structure for your aircraft purchase can be as difficult and costly as choosing the wrong aircraft.

Boeing 767

Outright Purchase:

For many airlines, especially start-ups, the lack of capital can be restrictive in acquiring modern aircraft (A320, B787, B747-400, B737NG etc.). Outright purchase is mainly the domain of larger airlines, major leasing companies and smaller airlines looking for older aircraft types, such as B727, MD83, B747-200, B737-300 etc.)

Lease Purchase:

There are two types of dry lease... Financial & Operational lease. A financial lease can have a purchase option included, with a balloon payment at the end of the lease term. Ownership and title remain with the Lessor until all payments have been made. Most small or start-up airlines will take this route, unless ACMI or a full charter program is preferable.

Financial Lease Definition:

Also known as a capital lease, is defined when one of the following conditions are met:

  1. at the end of the lease term the Lessee has the option to purchase the aircraft at an agreed price.
  2. the lease payments are more than 90% of the market value of the aircraft.
  3. the term of the lease is over 75% of the aircraft's usable life.
Lockheed L1011

With a finance lease the aircraft appears on the Lessee's balance sheet, as it is viewed as a purchase.

Chattel Loan: This is a form of outright purchase where a loan is provided for the purchase so ownership of the aircraft is transferred to the purchasing company and the financier simply takes a mortgage over it. This type of arrangement is commonly used when seeking ownership of the unit at the end of the finance term as a residual or balloon payment is not required. Under a chattel loan the aircraft appears on the company balance sheet as titled to the aircraft has been transferred.

Aircraft Funding: To find out more on aircraft funding (purchase or lease) or airline financing please take a look at our Aircraft Funding page.