December 2004/January 2005
Volume 03, Issue 8
|Focus on Finance|
Repossession is nine-tenths of the law
For inexpensive car loans, you need laws that make the lenders feel secure, essentially by protecting their right to the asset as collateral if the buyer can't make payments. The same is true for airplane loans. In the United States, lending laws give airplane financiers security. But there is no equivalent provision in international law.
Scott Scherer, vice president of Aircraft Financial Services for Boeing Capital Corporation, said the lack of guaranteed security in international markets makes aircraft loans difficult to obtain. When loans are granted, they usually come with high financing costs. And if an airline can't afford these terms, it means lost sales for Boeing and lost economic opportunities for international customers and the people they serve. "The more risk there is, the higher the cost," said Scherer.
Let's discuss money: The talk of finance
Those involved in the aircraft financing market use specific terms in their everyday business routines. Some of these terms may seem familiar to anyone who's taken out a loan; others are more germane to the finance industry. Here's a list of a few common financial terms that relate to the Cape Town Convention (see story at above)
Asset: Any possession that has value in an exchange.
Asset-based financing: Methods of financing in which lenders and equity investors look principally to the value of a particular asset as security for their financing in the event of a default by the borrower.
Collateral: An asset that can be repossessed if a borrower defaults (fails to make the timely payment of interest or principal).
Export-Import Bank: A bank established by the U.S. Congress to encourage trade with other countries by supporting the financing of U.S. goods and services.
Risk: The degree of uncertainty of return on an asset.
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