With the implementation of the Aircraft Registration Act in 2010, Malta is now seen as a highly competitive jurisdiction which relies on the aviation industry for its lucrative tourism industry, as well as for importing and exporting, and for aircraft registrations.
Having ratified the Cape Town Convention in 2010 Malta is able to provide for more sophisticated cross-border and domestic financing of moveable assets. This is useful in situations where banks and lessors funding assets which are not in their possession would risk losing their security position, especially if the asset moves across a jurisdictional border.
By providing more security to the private sector, the Convention is reducing the cost of borrowing and in certain cases, facilitating such borrowing where otherwise it would not be possible.
The Malta aviation industry is now seeing aircraft operators and companies increasingly turning to operating leases to manage fleets. This allows the option to benefit from a temporary increase in capacity without the financial burden of buying the aircraft outright and also shifts the burden of second hand aircraft values onto the leasing company.
A finance lease provides the lessee with an option to purchase the aircraft at the end of the lease term, and resembles a mortgage or an instalment sale in that the purchase price of the aircraft at the end of the lease, when added to the total amount of ‘rent’ paid during the lease period, will be roughly the same as if the aircraft had been originally purchased on credit.
One of the major advantages of leasing in this manner is that capital can be retained, although finding a good home for such capital which offers a decent return nowadays is a different story.
However, like buying a house, in the long term outright purchasing of an aircraft still works out significantly cheaper than renting, especially if you consider that on average an aircraft life span is around 30 years.
So what influences a decision as to whether to purchase or buy?
A primary consideration will be the anticipated levels of usage. In other words, will the aircraft be used enough to justify the purchase and ownership costs. Ownership can be a very sensible option especially when an aircraft is flown for at least 300 hours or more each year.
There is also the option of joint or fractional ownership. Sharing the cost and responsibility for an aircraft is an attractive arrangement for many aircraft owners. For those owners who do not use their aircraft for at least 300 hours per year, the option to share the purchase and ownership costs could offer an effective cash flow solution. However, joint ownership will not only share the costs of acquiring, operating and maintaining an aircraft but will also share use of the aircraft in terms of flight hours, schedules and impact proposed geographical location. Selecting the right partner to balance your own aircraft usage will be of absolute importance in this case.
Other factors which can influence the decision to purchase or buy include consideration of the level of deposit required. The ownership option having higher deposit commitments than a finance option.
Another major consideration is maintenance operations. When you own your own aircraft, you get the priceless benefits of flying wherever you want to go, whenever you want to go, but you are also responsible for the aircraft’s maintenance. It is a well known fact that the aviation industry is heavily regulated in this regard so this is not a responsibility to be taken lightly. Using a leasing option can relieve some of this burden as the leasing company will remain the owner of the aircraft through-out the leasing period, thus ensuring a secure and reliable transport service. However, those in a position to purchase their own aircraft are usually well experienced in such matters and generally have a good team behind them to manage the various regulatory matters.
Ultimately the starting point of any decision process, whether it’s to lease or to acquire an aircraft, has nothing to do with costs. It’s about time. As the old adage goes ‘time is money’, and as any successful business person will tell you that time is as valuable as money. In this era of globalisation, being able to reach anywhere in the world quickly to exploit any business opportunity is crucial.
The fact is, business aircraft outstrips commercial airlines on several fronts. For one thing, far from being the ultimate “display of wealth”, they are “time machines”, convenient and time-saving omitting the tiresome delays and crowds at the departure gate.
If for example, you need to visit three nearby cities in a day for meetings, you can do so on a business jet because you can fly according to your schedule.
Business aircraft can land at smaller airports closer to the city centre which works out a shorter car ride than to reach cities from major international airports. Time is saved, too, when the aircraft is able to fly non-stop between smaller, second-tier destinations, compared to commercial airlines that will always route through main city hubs.
Indeed, although the major international airports have been trying hard to retain high-end travellers by improving amenities in first and business class, they still can’t provide what a business aircraft can, namely, control of the passenger list and absolute privacy, advantages that business-jet owners value highly.
Written by Samantha Snow, Client Services Director