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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.
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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