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Shearwater Aero Capital, the global corporate aviation finance specialist that has provided asset-based loans on aircraft worth over $100m since its launch in 2014, is warning that as many as 3,500 older private jets around the world could struggle to secure new financing when their existing loans and leases expire.

The company estimates these jets could need as much as $10bn in new financing.

Shearwater Aero Capital believes a key reason for this is because mainstream lenders are increasingly focused on new jets, as they think this represents a lower risk than financing used ones - especially those built 10 years or more ago.

New research from the company reveals 67% of business aviation professionals think it’s difficult to secure financing for business aircraft that are 10 years or older. Furthermore, 34% expect it to become even harder to do this over the next two years, with only one in five expecting it to become easier. Additional research reveals that 74% of the world’s private jets are at least 10 years old, with 55% fifteen years or older. Some 28% are over 25 years old.

Chris Miller, Managing Partner, Shearwater Aero Capital, says: “Most aircraft are financed in one way or another but as their loans or leases end, mainstream banks are becoming increasingly unwilling to renew financing. This is because of their inability to predict an aircraft’s value accurately as tracking this is not their expertise, and it’s often seen as too time consuming.

“In terms of their desire to focus on funding newer aircraft, although they may believe they are reducing their risk, they are in fact exposing themselves to potentially higher market fluctuations and speculation. This is because new models can sometimes be viewed as ‘in fashion’ and command a premium, compared to used aircraft that have normalized in their resale value.”

In a separate note, Oliver Stone, Managing Director of London-based private aircraft brokerage and asset advisory company, Colibri Aircraft, adds:

"The value of older aircraft, particularly as they age past the 15 year point, increasingly revolves around their maintenance status and the cost of future upgrades required to keep them airworthy. This is something that we as a broker spend a lot of time researching for our clients.

"We find that most financial institutions do not have the capacity or expertise in-house to do this, and so focus on the newer aircraft where maintenance status is less of a determinant of value. For example, ADS-B Out is a new monitoring system that broadcasts where an aircraft is at all times. It is already a requirement for aircraft in Asia to have this, and in the US and Europe it becomes mandatory in January and June 2020 respectively.

"ADS-B Out parts and installation costs can vary widely, from $25,000 to $200,000, depending on the aircraft’s platform. For aircraft older than 10 years, this can be a significant proportion of value and so the costs of these upgrades becomes directly linked to the value of the aircraft.

BlueSky Business Aviation News | 18th July 2019 | Issue #519