Buying an aircraft can be a daunting task. Unless a company or individual has deep pockets, it will inevitably require either leasing with an option to buy or financing a purchase. Even if paying in cash is an option, doing so can be problematic. Dave Labrozzi, senior v-p and general manager of Danbury, Conn.-based GE Corporate Aircraft Group, explained the difference between leasing with an option to buy and outright purchase.
“Asset-based loans rely primarily on the underlying collateral–in this case the business aircraft–to secure the loan,” he said. “Some aircraft buyers have used cash-flow lending, which relies on the strength of a borrower’s cash position, balance sheet and income statement, or pre-existing business or personal lines of credit to finance the purchase. However, especially for a growing midsize company, this type of lending can restrict the use of working capital for other important business needs.” Having liquid assets allows new market expansion, research and development and many other options. Asset-based borrowing gives the company greater financial flexibility and frees up working capital.
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