Understanding Aircraft Financing Basics

Do you know that in order to provide you the cheap flights, the airline companies pre-plan their financing and operational strategies? Though there are a number of operational parameters which can be moulded to provide the lowest air fare to the customers, the financing parameters are one of the main contributing reasons for controlling the costs. An airplane costs millions of dollars for the companies and these have to take the financing route for this purpose. In order to arrive at the lowest air fare, the reduction in the costs of financing is one of the main things to do.

Let us clear some of the basic notions of aviation financing. Typically, there are lending companies which provide the finances on different types of interest rates. The interest rates can be fixed, variable and even balloon financing is also provided. Most of the time, you will find that the financing is being done on the fixed rate of interest. This gives a clear idea to the borrower on how much the monthly burden will be. Variable rates are not generally preferred since it further adds complexity to the calculation of the lowest air fare and if the rates vary too frequently, pricing of the cheap flights might become tedious. The tenure for which the financing is provided is typically from 10 to 20 years duration. This is, in turn, determined by the useful life of the airplane for an airline company.

Financing of the aircraft and determination of the rate of interest is dependent on a number of aircraft parameters. So, you would find the loan quantum and rate of interest dependent on whether it is a turbine or a jet plane or even a helicopter and also on whether it is a single engine plane or a two engine one which you want to finance. Further, the financing is also provided for the parts of the plane and the tools used in the aircraft since these are quite expensive to be bought.

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