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Feature: Thinking outside the box for PDP finance

04 March 2011

Although predelivery financing has improved, financiers continue to be selective in their lending. Lessors may be the key to helping airlines find a financing solution.

Read more: predelivery payments (PDPs) Boeing Airbus Natixis Norwegian Air Shuttle Jackson Square Aviation

In a perfect world, an airline will place an order for an aircraft, pay its predelivery payments (PDPs) with its own cash, arrange long-term financing for the aircraft and take delivery. But as any airline, manufacturer or lender will tell you, things are never that easy.

Manufacturers require customers to pay a percentage of the purchase price of an aircraft before it is delivered. These payments, which can range anywhere between 20% and 30% of the aircraft price, help manufacturers recover some of the costs that go into building the aircraft.

In the past airlines commonly paid PDPs from their own funds. More recently they have mandated commercial banks to finance the payments in order to retain cash. Banks were happy to do it because in most cases they would gain the long-term takeout of the financing. However, since the financial crisis began, financiers have been less willing to make...

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