BRINGING AVIATION AND FINANCING TOGETHER - Violet Kwek, Sales Director, Greater China and North Asia Global Jet Capital
In February 2017, Violet Kwek joined private aircraft financier Global Jet Capital as Sales Director, Greater China and North Asia, after years of experience in corporate and ship financing. Just one year in, Violet has led the team to close its first deals in North Asia, including an operating lease with a Hong Kong-based client. Global Jet Capital is now seeing an increased demand for financing, as the demand for business jets in the Asia-Pacific region grows.
Tell me about your experience prior to joining Global Jet Capital.
I started working in corporate finance in 2004 in Singapore. My career in transportation started in 2007 when I joined DVB Bank Singapore as an Associate in their Mergers and Acquisitions Shipping team. Subsequently I moved to the ship leasing team, structuring finance and operating leases to shipowners based in Southeast Asia and India.
In January 2010, I joined Standard Chartered Bank's Structured Finance team in Shipping as an Associate Director in Hong Kong where I built up the shipping debt and lease portfolio in China and Taiwan across a diverse range of clients spanning private enterprises, conglomerates to state-owned enterprises and Chinese leasing companies. I became an Executive Director in Shipping Finance in 2014.
My last role prior to joining Global Jet Capital was the Deputy Head of Shipping Finance and thereafter the Deputy Head of Corporate Banking in the Hong Kong branch of China Minsheng Banking Corporation.
What are buyer’s options, in terms of financing?
There are 3 main types of financing:
- Finance leases; and
- Operating leases.
When considering financing products and being able to obtain the financing, some of the key considerations buyers should consider:
- Initial budget: The quantum of down payment required from the buyer, all upfront expenses in relation to the aircraft and its financing and the asset under management requirement and/or the cash security deposit (if any);
- Ongoing costs: The annual total cost of the loan/lease payments and the fixed and variable aircraft operating costs at the very minimum;
- Maintenance programs: Many financiers will require the aircraft to be on at least engines and APU programs. Buyers should check whether a pre-owned aircraft is enrolled in these programs. Some aircraft owners who paid cash for their aircraft and subsequently wish to refinance their aircraft may have to put up a significant buy-in as their aircraft gets older; and
- Residual risk on the aircraft: Buyers take the residual risk on an aircraft with a loan or a finance lease. Buyers can consider if they want to take the residual risk on the aircraft or pass this risk on to lessors like Global Jet Capital with an operating lease solution. In that way should the then market value of the aircraft be lower than its expected value at time of the sale when the owner wants to upgrade his/her aircraft, the risk of this price differential is passed on to the operating lessor.
What are some of the benefits of financing?
In general financing allows a buyer to utilise their funds more efficiently to maximise their returns, as typically the return on equity is much higher than the cost of financing.
When a buyer is in a situation where he/she has a substantial amount of cash and have no better projects or products to invest in, then it may be more beneficial for such clients to go for a lower cost of financing such as a loan/finance lease or pay cash for their aircraft. Of course if such cash rich buyers want to manage the aircraft’s residual risk with no exposure to market fluctuations, they can always look for Global Jet Capital to provide operating lease solutions to transfer that residual risk to us.
Other benefits of an operating lease solution of a business jet include:
- Lower cash outlay: As a higher quantum of financing of up to 100% of fair market value can be provided, the lessee typically only needs to fund the security deposit vs the 20-30% down payment;
- Ease and flexibility on exit: Full flexibility to upgrade or exit with no aircraft to remarket at end of lease as there is no need for the owner to wait to sell the aircraft;
- Predictable costs: Predictable lease and maintenance costs for precise budgeting as there are no bumpy cash outlays on the aircraft purchase and/or a loss on sale in book value on disposal of the aircraft.
The main disadvantage of an operating lease is that the lease is not easily terminated as the lessor has taken a view on the expected residual value at the end of the lease and, as such, priced the lease rate accordingly for the full lease term. A shorter lease term will entail a higher lease rate.
What are some common misconceptions surrounding aircraft financing?
The most common one is the misconception that operating leases do not require guarantees. Even though aircraft financing is an asset based financing, all forms of financing require a counterparty who has adequate financial strength to maintain their financial obligations. The key difference between an operating lease and a finance lease or a loan is that the residual risk is borne by the lessor rather than the lessee/borrower. A bank providing a property loan will also analyse whether a borrower has the adequate financial means to make his or her monthly repayments despite having the property mortgaged to them.
As most aircraft are owned by special purpose vehicles with no assets or operations other than the aircraft, the lessor will require a guarantor to ensure the lease payments will be made, no different aircraft than a home loan. Just like banks providing the home loans, they are in the business of providing financing, not leasing out residential apartments; Global Jet Capital is in the business of providing business jet financing, not leasing out business jets.
Another misconception is that as a non-bank financier, some clients may have the impression we do not require or have loose KYC (know your customer), anti-money laundering and anti-terrorism checks. In this respect, we are no different and have such similar requirements as with any bank.
Why is it beneficial to use Global Jet Capital over a traditional bank?
Different clients have different needs hence each client will require financing solutions that meets their needs and requirements.
Some of the advantages in financing with Global Jet Capital include:
- We may offer a higher financing loan-to-value in respect to the aircraft’s fair market value;
- As we are not a private bank, we do not require a minimum asset under management that a new client will need to deposit and/or invest in wealth management products though we will require a cash security deposit. As such the client has the flexibility to invest in any type of assets they want and/or invest in their businesses or family office which may generate higher returns;
- We typically work with clients to understand their requirements and tailor a solution specific for them based on their requirements and their financial metrics.
- We are one of the few if not the only financier in the Asia-Pacific region that offers operating leases on business jets. The benefits of an operating lease had been mentioned earlier.
For some Chinese clients, the advantages of financing with Global Jet Capital may be more pronounced as our financing products allow them utilise their precious offshore cash more effectively and efficiently for other investments and needs.
What can be expected from Global Jet Capital over the next couple of years?
For the North Asia region, we will continue to expand our presence in China and will look to develop our presence on other parts of North Asia such as Japan, Korea and Taiwan where we expect that our operating lease product may allow us to compete with the competitively priced traditional bank financings.
We will also endeavour to provide a more diverse range of financing structures that is tailored and reflects the needs of the different geographical markets in line with our aim to deliver innovative solutions to our clients.