In my line of work, I've often heard the phrase'There's a lack of finance for business jets in Africa'.But is there any truth in that perception, and should we and the industry in general be concerned?
Given its scale and diversity, GDP growth of 5.8% in 2014 (compared to a global average of 3% the year before) and a population of over 1.1 billion, Africa represents huge opportunities for growth in business aircraft ownership and consequently aircraft financing.
Many lenders have been actively financing aircraft across Africa, however, certain sections of the market perceive that sufficient finance still does not exist. Although there are a few reasons for this perception, I believe they are region specific and include:
So what are lenders looking for?
For a transaction to be attractive to a lender there will be a strong focus on credit quality, asset class, operations, maintenance and registration. These requirements are also not only pertinent to transactions in Africa, but are common to aircraft financings across the globe.
On the subject of asset class, lenders will be motivated by financing new or pre-owned aircraft that have low time and are well-maintained; with the engines, airframe and auxiliary power unit ('APU') enrolled in manufacturers' service programs. Regarding aircraft value, lenders will take full consideration of the current and potential future market for the aircraft; e.g., how likely is it that future demand and residual values will be affected by changes to engine noise/emissions regulations, new engine technologies or new aircraft models?
With regard to maintenance and operations, the intentions for the on-going care, maintenance and management of any aircraft, combined with its registration and intentions for basing, crew and operations are of particular importance.
When it comes to registration, lenders are sensitive to a jurisdiction's consistent and independent application of the law and respect for lender's rights; e.g., has there ever been a repossession in the jurisdiction in question; if so, how did it go? A registry's ratification of the Cape Town Treaty is also taken into account.
Reasons to be Optimistic
There is no doubt that instability, terrorism and crises (such as the recent and on-going Ebola outbreak in parts of West Africa) have presented challenges for those financing business aircraft in Africa. These challenges aside, there are many factors that have resulted in a burgeoning appetite to acquire larger and more modern business aircraft. Among these are the expansion of the oil, gas and mining industries and the resultant increase in the number of ultra-high-net-worth individuals. Economic growth, combined with the continued inconsistency in commercial airline networks, the expansion of foreign direct investment, and the poor quality of aviation infrastructure present a solid case for business aircraft ownership across the continent. In spite of the challenges posed by the African market, there is an opportunity for lenders, operators, manufacturers and other key stakeholders to collaborate in educating and developing the market to ensure continued safe and professional conduct of aviation operations and to promote greater availability of financing in the future.
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Large markets in Asia, such as China and Indonesia, were big contributors to business aircraft order books. However, with the recent economic slowdown in the Far East, it's likely that this rosy picture will not return for some time.