Corporate aviation finance specialist Shearwater Aero Capital 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 $10 billion in new financing.

Shearwater 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 (research company Pollright surveyed 56 business aviation professionals in April and May 2019) from the company reveals 67 per cent of business aviation professionals think it's difficult to secure financing for business aircraft that are 10 years or older. Furthermore, 34 per cent expect it to become even harder to do this over the next two years, with only one in five expecting it to become easier.

New Shearwater analysis of JetNet data from April 2019 reveals that 74 per cent of the world's private jets are at least 10 years old, with 55 per cent fifteen years or older. Some 28 per cent are over 25 years old.

Managing partner Chris Miller 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 normalised in their resale value.”

In a separate statement, Colibri Aircraft MD Oliver Stone says: “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.”

Shearwater Aero Capital provides asset-based financing to help clients purchase new or pre-owned business aircraft by securing the aircraft as collateral and intelligently managing the aircraft to preserve its value. Furthermore, asset-based financing also provides an opportunity for investors to capture high yield value in the fastest growth segments of aircraft sales; international developing markets. Last month, it revealed it is in the process of welcoming additional capital sources to diversify its investor base and keep up with demand.

The company provides finance solutions for all types of aircraft. Funding is relatively low risk with an average loan to value of 65 per cent. As added investment security, all financed aircraft are independently operated by third parties unrelated to the obligor, so in the event of a default, Shearwater can quickly repossess and liquidate the aircraft to satisfy outstanding balances.

2018 was Shearwater's strongest yet accounting for 60 per cent of the company's business since its launch in 2014. Last year, its average loan size was approximately $7 million. It has provided loans from $1.5 million to $15 million for a range of aircraft from a Hawker 400 XP to a Bombardier Global 5000 and financed clients from Asia, the Middle East, Africa and the USA.

Shearwater offers a variety of services across the private aviation industry including aircraft financing, in the form of asset based financing on business jet aircraft for clients across the globe, and appraisal and valuation services. All of its appraisals are USPAP compliant and performed by an accredited senior aircraft appraiser by the American Society of Appraisers (ASA).