Direct Lending of Commercial Aircraft

As described above for private aircraft financing, an airline may simply take out a secured or unsecured loan to buy a commercial aircraft. Because the cost of a commercial aircraft may be hundreds of millions of dollars,

most direct lending for aircraft purchases is accompanied by a security interest in the aircraft, so that the aircraft may be repossessed in event of nonpayment. It is generally very difficult for borrowers to obtain affordable private unsecured financing of an aircraft purchase, unless the borrower is deemed particularly creditworthy (e.g. an established carrier with high equity and a steady cash flow).

By directly owning their aircraft, airlines may deduct depreciation costs for tax purposes, or spread out depreciation costs to improve their bottom line. For instance, in 1992, Lufthansaadjusted its accounting to depreciate aircraft over 12 years instead of 10 years; the resulting drop in depreciation "expenses" caused the company's reported profits to rise by DM392 million. JAL made a similar adjustment in 1993, causing the company's profits to rise by ¥29.6 million.

See also:

• - Airline Finance
• - Commercial Aircraft Financing
• - Private Aircraft Financing
• - Aircraft Financing at Glance
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