What are aircraft ratings
German credit institutions have been heavily involved in aircraft finance since the 1980s. Since March 2009, the Pfandbrief banks active in aircraft financing have had the aircraft Pfandbrief available as an additional refinancing instrument.
Civil aviation is heavily dependent on macroeconomic developments and shows a pronounced cycle. Regardless of past aviation crises, the aircraft market is a growth market in the long term. This positive prognosis is essentially due to two aspects:
- Population and economic growth, especially in Asia (China, India, Singapore, Malaysia),
- Increasing demand for more modern and more efficient aircraft (weight reduction, improved aerodynamics, best possible efficiency in fuel consumption).
The aircraft financed by Pfandbrief banks can be divided into four classes:
- "Wide bodies": wide-body aircraft such as Boeing B747 ("Jumbo Jet") or Airbus A380, which are used on long-haul routes and in intercontinental traffic,
- "Narrow bodies": such as the Boeing B737 models or the Airbus A320 products, this aircraft is used on short and medium-haul routes, i. H. mainly used in continental traffic,
- "Regional jets" or "turbo props" are used on short routes, especially for feeder traffic. Relevant manufacturers in this segment are Bombardier (Canada), Embraer (Brazil) and ATR (France / Italy),
- Cargo planes are regularly special models of the larger Airbus and Boeing aircraft types.
The flexible use of aircraft is based primarily on their high degree of standardization and the largely unified safety regulations. If a user needs a certain type of aircraft, potential sales prospects can be found very quickly and the aircraft can be adapted to the needs of the prospective customer without great effort. The purchase and sale of used aircraft is of great importance and essentially takes place in three constellations:
- Aircraft as a real commodity: some market participants - especially the large leasing companies - already buy with the intention of selling the aircraft at a profit in the short to medium term,
- Fleet restructuring: Airlines open up new flight routes or abandon existing ones, increase or decrease their capacities,
- Restructuring or liquidation of airlines.
In order to be able to refinance aircraft loans by issuing aircraft Pfandbriefe, certain requirements must be met. Not all aircraft can be (re-) financed with the help of the aircraft Pfandbrief, there must be an aircraft mortgage, the law prescribes a lending limit and some loan modalities and adequate insurance cover must be in place. In detail:
- Pursuant to Section 26b (1) of the Pfandbrief Act (PfandBG), the loan is limited to aircraft within the meaning of Section 1 (2) sentence 1 of the Aviation Act (LuftVG) - i.e. aircraft in the true sense - that are entered in a public register. Aircraft are a sub-group of so-called "aircraft" within the meaning of the Aviation Act (LuftVG). In accordance with the Aviation Licensing Regulations (LuftVZO), they must be entered in the aircraft register when admitting to traffic. It is the official directory of all aircraft registered for traffic in the Federal Republic of Germany. It is not possible to register an aircraft in the aircraft role if the aircraft is registered in another country's aircraft register.
- Only loan claims that are secured by aircraft mortgages (registered liens in accordance with Section 1 of the Air Vehicle Rights Act (LuftFzgG)) or comparable foreign aircraft mortgages may be used to cover aircraft Pfandbriefe.
- According to § 1 LuftFzgG, only an aircraft registered in the aircraft register can be debited with an aircraft mortgage. It arises through agreement and entry in the register for liens on aircraft, which is kept at the Braunschweig District Court.
- Evidence of the security provider's registration authorization must be provided in a publicly certified form. The aircraft mortgage is strictly ancillary, so it can only be transferred together with the claim and is lost when the claim expires. The prerequisite for the legal transfer of the claim are the agreement of the previous and the new creditor and entry in the mortgage register.
- Only up to 60% of the conservatively determined aircraft mortgage lending value may be included in the cover pool of an aircraft Pfandbrief.
- Financed aircraft must be insured for at least 110% of the outstanding loan claim for the entire term of the loan. Aviation liability insurance, aviation hull insurance and aviation hull war insurance are the usual insurance cover for aircraft.
Loan receivables from aircraft financing can only be used to cover an aircraft Pfandbrief if an aircraft mortgage lending value has been determined beforehand. This must be determined by an independent and expert appraiser who must have the necessary professional experience and the necessary specialist knowledge for determining aircraft mortgage lending values (Section 26d (1) PfandBG).
Airplanes are valued by specialized valuation firms that have been established in the market for many years and whose experts are largely organized in the International Society of Transport Aircraft Trading (ISTAT). The ISTAT defines uniform assessment criteria and standards for the experts.
When determining the value, the long-term characteristics of the aircraft must be in the foreground, whereby the market value must not be exceeded. Speculative elements may not be taken into account when determining the value (Section 26d (2) PfandBG).
The procedure for determining the mortgage lending value is regulated by the Aircraft Mortgage Lending Value Determination Ordinance (FlugBelWertV) that came into force on May 15, 2009.
Senior Manager Ship and Aircraft Finance
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