Sourcing aircraft finance has been increasingly difficult since well before the demise of Lehman Brothers, the money markets by then having tightened significantly and the world shocked to have already seen oil at US$150 a barrel. Business aviation was suffering well before the depressing 2008 NBAA meeting when misplaced optimism permeated the Orlando Convention Center.

Following Lehmans' collapse and subsequent global economic turmoil, aircraft values undoubtedly fell off the proverbial cliff and most have not materially recovered since. Manufacturers who had robust order books at the time found that industry-established and new buyers alike immediately cancelled and deferred valuable orders. Corporates sought to manage cash in times of serious recession, also critically avoiding stockholder revolts and increasing press scrutiny. Commercial charter and fractional operators saw demand collapse and could neither justify nor fund acquisitions.

HNWIs optimised strategies to take full advantage of a depressed market, continuing to buy in much smaller numbers. Those having early positions on new or replacement aircraft were forced to take delivery at contracted prices while having nowhere to sell their redundant older aircraft. Values plummeted further at each turn of events and even the bravest of financiers became wary of supporting deals as the environment deteriorated.

As lenders were forced to rebuild fragile balance sheets, book values of assets against which they had secured loans reduced to a fraction of their pre-downturn figures, forcing significant write-downs. While many values have undoubtedly stabilised, some uncertainty continues as to where some might finally settle and lenders are far more cautious with models financed, age and condition, amount financed, and true ability of borrowers to perform.

Yet aviation is fundamental to promoting global business and economic growth, consequently aircraft continue to be in demand and require financing support. Lenders generally see aircraft as good security so long as they can be comfortable with the integrity of asset value and the ability of a borrower to repay. While all stronger banks have supported key relationship customers throughout, many revitalised financiers have returned to the sector seeking only the better propositions.

Opportunities for lenders are abundant, but they can and must now be highly selective, today preferring modern, in-production models, either new or under five years old. Most prefer larger, long-range types such as the Falcon 7X, Global Express and bigger Gulfstreams, viewed as safe bets. Light and medium-sized jets are more difficult to finance, as there has been oversupply and an excess of models, some viewed as having a particularly difficult future.

The optimism of 2006-08 for very light jets is now a faded memory. Many very light, light and mid-cabin jets transacted in the post-Lehman era have traded for cash and at a hefty discount, as have a significant number of Challengers – an aircraft type hit hard – as buyers realised that they could now afford 'more aircraft for their dollar'.

To a large extent, lenders have been unwilling to enter this territory unless in support of an established house client, or well supported by OEM or export credit agency (ECA) guarantees.

OEMs have been forced by weak sales and increasing unsold inventory to support buyers unable to secure funding themselves. In order to deliver aircraft, they have discounted deals, maximised their own banking relationships and additionally sought Government agency funding to support deliveries of pre-contracted aircraft, with a number of governments focused on keeping jobs and supporting commercial bank funding with ECA guarantees previously used to primarily support Boeing, Airbus and other airliner deliveries.

Lenders are again funding aircraft if the loan to value ratio is right for the model and if the aircraft is new or otherwise relatively young and well maintained. They have very precise views on values and proportion advanced. In days gone by, borrower net worth of perhaps five times the loan value would have secured funding for, say, 90 per cent of appraised value.

Today, a borrower's real net worth may be dependent on fragile asset values and other variable factors, so proven cash flow is therefore viewed as being much more important. A typical new large cabin aircraft may well today secure funding of 75-80 per cent of its value, if the applicant is a known client of the lender and has good cash flows.

A five-year-old Challenger with relatively low time and an excellent maintenance history may, however, only secure 60 per cent funding of a significantly reduced appraisal, but again established borrower relationships and cash flow are critical if the deal is to be done with ease.

Loans with mortgages remain the most common form of financing, along with lease purchase and finance leases. Operating leases are more rare in the segment. No-recourse funding is scarce, not least as values remain in flux, with lenders seeking security beyond the asset itself. Key players for larger business aircraft and customers with a solid track record remain the big international banks, including Bank of America, Barclays, BNP Paribas, Credit Suisse, Deutsche, DVB, HSBC and Lombard (RBS). Lessors CIT and GE are also highly active.

If contemplating a purchase in today's market, cash is king and will secure the best price from any seller, whether new or used. If financing, then, though funding is increasingly available, a quick deal can only be put together if one has a history with the lender. Expect the lender to be aggressive on the loan to (proven) value ratio, to want sound accounts and to likely seek additional personal guarantees.

Gary Palin is an industry veteran having managed the operation of most modern business jet types and personally overseen over 200 jet transactions in more than 30 years of business jet sales. He is managing director at consultancy firm Interavia (www.interaviagroup.com).

Quick links to money lenders

Our online guide to EBACE 2012 lists the finance and leasing providers exhibiting in Geneva, including the major players such as Bank of America Leasing, Credit Suisse and GE Capital, and more specialist business aviation providers.