Aircraft & Helicopter Finance in Australia is a specialized type of loan designed to help individuals, businesses, and aviation operators purchase or lease aircraft or helicopters. Whether for private use, charter services, tourism, or commercial operations, various financing options are available, including secured loans, leasing arrangements, and tailored financial products. Due to the high value of aircraft and helicopters, lenders often require extensive due diligence, and loan terms can be quite specific to the nature of the aviation asset being financed.
Types of Aircraft & Helicopter Finance in Australia
Secured Aircraft/Helicopter Loan
- A secured loan uses the aircraft or helicopter as collateral for the loan. The lender has a security interest in the asset until the loan is repaid in full. Secured loans generally offer lower interest rates.
- Ownership: The borrower owns the aircraft, but the lender holds a security interest.
- Interest Rates: Typically lower than unsecured loans.
- Best for: Borrowers who want to reduce their interest costs by providing the aircraft or helicopter as collateral.
Unsecured Aircraft/Helicopter Loan
- An unsecured loan does not require the aircraft or helicopter as collateral. The loan is granted based on the borrower’s creditworthiness and financial standing. Interest rates are higher compared to secured loans due to the increased risk for the lender.
- Ownership: The borrower owns the aircraft outright with no security held by the lender.
- Interest Rates: Higher than secured loans.
- Best for: Borrowers with strong credit profiles who prefer not to use the aircraft as collateral.
Chattel Mortgage (For Business Use)
- A chattel mortgage is a common financing method for businesses purchasing aircraft or helicopters. The borrower takes ownership of the asset at the time of purchase, while the lender holds a mortgage over it until the loan is repaid. The chattel mortgage offers potential tax benefits to businesses.
- Ownership: The business owns the aircraft immediately.
- Tax Benefits: GST on the purchase price may be claimable, and businesses can deduct depreciation and interest as tax deductions.
- Best for: Businesses looking for tax advantages and immediate ownership of the aircraft.
Finance Lease
- A finance lease allows the lender to purchase the aircraft or helicopter, and the borrower leases it for a fixed term. At the end of the lease, the borrower can purchase the aircraft by paying a residual value, extend the lease, or return the asset.
- Ownership: The lender owns the aircraft during the lease period, with the option for the borrower to buy it at the end.
- Best for: Businesses or individuals that want flexibility in managing cash flow and want the option to lease or purchase later.
Operating Lease
- An operating lease is a rental agreement where the borrower uses the aircraft or helicopter for a set period without the intent of ownership. At the end of the lease, the aircraft is returned to the lender or lessor.
- Ownership: The lender or leasing company retains ownership throughout the lease term.
- Best for: Aviation businesses that prefer to lease aircraft rather than commit to ownership, allowing for fleet flexibility and upgrades.
Commercial Hire Purchase (CHP)
- In a commercial hire purchase, the business hires the aircraft or helicopter and makes regular payments over time. Once all payments are completed, including any residual value, the ownership of the aircraft transfers to the borrower.
- Ownership: The borrower gains ownership after the final payment.
- Tax Benefits: Businesses may claim interest and depreciation as tax deductions, and GST may be claimable on the aircraft purchase price.
- Best for: Businesses that want to own the aircraft after making structured repayments over time.
Tax Benefits for Aircraft & Helicopter Finance (Business Use)
If the aircraft or helicopter is used for business purposes, various tax benefits may apply:
- GST Claim: Businesses can often claim the GST on the purchase price of the aircraft under a chattel mortgage or hire purchase arrangement.
- Interest and Depreciation Deductions: Interest payments and depreciation of the aircraft may be tax-deductible if used for business.
- Instant Asset Write-Off: Depending on the tax laws, businesses may be able to take advantage of the instant asset write-off or temporary full expensing, allowing them to deduct the full cost of the aircraft in the year it is purchased.
Key Features of Aircraft & Helicopter Loans
- Loan Amount: Loan amounts depend on the value of the aircraft or helicopter and the borrower’s financial standing. Secured loans typically allow for higher loan amounts due to the collateral.
- Interest Rates: Interest rates can vary based on the type of loan (secured vs. unsecured), the borrower’s credit history, and the financial structure.
- Loan Term: Terms typically range from 1 to 10 years, depending on the lender and type of loan.
- Balloon Payment: Loans with balloon payments offer lower monthly repayments, but require a large lump sum payment at the end.
- Fees: Watch for upfront fees, account-keeping fees, and early repayment penalties.
Factors to Consider When Choosing Aircraft & Helicopter Finance
- Interest Rates: Compare rates from different lenders to ensure you’re getting the most competitive deal.
- Loan Term: A longer loan term results in lower monthly repayments, but increases the total interest paid over the life of the loan.
- Balloon Payment: If opting for a balloon payment loan, ensure your financial planning can accommodate the large final payment.
- Deposit: Some loans, particularly secured ones, may require a deposit, affecting the overall loan amount.
- Tax Benefits: Consider the potential tax advantages of business loans for aircraft and helicopters, particularly regarding GST, interest, and depreciation deductions.
Eligibility for Aircraft & Helicopter Finance
Lenders will assess several factors when considering an applicant for aircraft or helicopter finance:
- Credit History: A strong credit history is crucial for securing competitive interest rates and loan approval.
- Financial Stability: Proof of income or business financials may be required to show the ability to repay the loan.
- Deposit: Some lenders may require a deposit, especially for secured loans.
- Purpose of Use: If the loan is for business purposes, you may need to demonstrate that the aircraft will be used commercially.
Summary
Aircraft and helicopter finance in Australia offers a range of flexible options to help businesses and individuals purchase, lease, or refinance aviation assets. With options like secured loans, chattel mortgages, finance leases, and hire purchases, borrowers can find financing solutions that suit their cash flow and ownership preferences. It’s important to consider factors such as interest rates, loan terms, balloon payments, and potential tax benefits when choosing a loan. By selecting the right financial structure, borrowers can manage the high cost of aircraft while maximizing tax efficiency and maintaining operational flexibility.
*Please consult your accountant or financial adviser for tax advice.