Question

Discuss financial aspects involved in Aviation Industry in detail word count (500-600 words)

Answer 1

Aircraft finance refers to the financing for the purchase, development, and operation of aircraft. Complex aircraft finance and monetary aspects (such as those schemes employed by airlines) share many direct characteristics with the maritime finance, and to a lesser extent with the project finance. The main category of aircraft in the aviation industry are commercial aircraft and it is operated by the airlines or specific companies, they use more sophisticated leases, transactions, and debt financing schemes for the operation of the airlines in the aviation industry. The three most common schemes for financing commercial aircraft are through secured lending, operating leasing, and finance leasing. The other major factors to pay or the financial aspects are cash, operating leases, bank loans, finance leases, export credit guarantee loans, tax leases, manufacturing support, and EETC’s are the leading instruments. These direct schemes are primarily distinguished by the tax and accounting considerations with respect to country-specific laws, particularly tax-deductible depreciation, interest rates, and operating costs which can take to reduce tax liability for the operator, financier, and lessor.

Direct Lending: Direct lending is a form of the corporate debt provision in which the lenders other than banks make direct loans to companies (in the aviation industry, the loans to aircraft companies) without intermediaries or any mediators such as a broker, an investment bank, or any of the private equity firm. An airline may simply or directly take out a secured or unsecured loan amount to buy a commercial aircraft in most of the cases. In such large transactions of the purchases, a syndicate of any of the banks involved may collectively provide a loan to the borrower (Airline Company).

Operating Lending: Commercial aircraft carriers are often leased through a process of Commercial Aircraft Sales and Leasing (CASL) Company, the two largest of which are GE Commercial Aviation Services (GECAS) and International Lease Finance Corporation (ILFC). The operating leases are usually short-term periods (less than 10 years in the duration or timeline), making them more attractive when aircraft are needed for a start-up venture, a new airline operation, or for the tentative expansion of an established carrier in a new market. The short duration of an operating lease helps protects against aircraft obsolescence, a very important consideration in many of the countries due to the changing noise and environmental-related laws.

Finance Leasing: The finance leasing, is also known as "capital leasing", and it is a longer-term arrangement or agreement in which the operator (airline company) comes closer to effectively owning the respective aircraft. It directly involves a more complicated mode of transaction in which a lessor, often a special purpose company (SPC) or the partnership, which purchases the aircraft through a combination of debt aspect and equity financing option and then directly leases it to the respective operator. The operator may have the direct option to purchase the aircraft at the expiration of the applicable lease or may automatically receive the aircraft (airline) at the expiration of the lease. The major forms of finance leasing through Equipment Trust Certificate (ETC), Extendible Operating Lease (EOL), and other country-specific lease options.