Fancy investing in a plane? Crowdfunding site offers the chance
BERLIN Aug 25 (Reuters) - Crowdfunding has been used to finance everything from bands to business start-ups, social causes and even plastic surgery. Now it's being used to buy planes.
A new online platform is attempting to attract investors to finance the purchase of small regional passenger jets - deals that have often struggled to find backing from traditional lenders.
Major airlines such as Emirates and Lufthansa and big leasing companies, which place large orders for dozens of huge aircraft, find it relatively easy to get funding from banks and investment firms.
But regional operators tend to buy just a couple of planes seating under 100 passengers at a time, making funding such deals less attractive as an investment proposition, with lenders demanding more collateral than before the financial crisis.
David Bradley-Ward, a director at regional plane lessor Phoenix Aircraft Capital and a corporate financier, co-founded Ablrate.com after Phoenix struggled to find the final piece of funding for a deal last year to buy a jet from one airline and lease it to another.
The web platform aims to raise money for both leasing firms and airlines via peer-lending to meet the funding gaps in purchasing small regional aircraft.
The difficulty in finding financing means many regional carriers are not able to renew their fleet as quickly as they would like and the process can be costly.
"There's plenty of financing going on but it's financing at a different level. There's no trickle-down effect, which is why we're seeing the growth of the peer-lending industry," former RAF engineer Bradley-Ward told Reuters.
Crowdfunding allows individuals and small businesses to raise money from pools of investors who can put money into peer-to-peer lending schemes. Investors can lend as little as 10 pounds, often without the fees accompanying equity funds.
Pioneering platform Kickstarter, which has been running for five years, says it has received $1.28 billion to date from 6.9 million backers to fund 68,181 completed financing projects.
But given the uncertainties of crowdfunding, which has attracted criticism for lack of investor protection, Ablrate.com is starting small.
Its first transaction on the site, launched in mid-July, aims to raise 100,000 pounds ($165,850) to help fund Phoenix's purchase of an ATR 42-500 turboprop jet to be leased to government-owned Colombian airline. Similar jets can cost up to $20 million at list prices when bought new.
The transaction offers an interest rate of 10 percent and Bradley-Ward said that the rate on future deals could be as high as 13 or 14 percent depending on the level of risk and financing involved. As of Friday evening, a third of the target amount of 100,000 pounds had been pledged by 27 different lenders.
"We looked at it as a slow burn," Bradley-Ward said. Should the concept prove successful, Ablrate.com has lined up several more transactions that could be put on the site, which could have a total value of up to 50 million pounds, he added.
He said the platform was targeting UK-based investors mainly because there is a framework of regulation for crowdfunding in the country now, such as for governing money-laundering and data protection.
Britain's financial watchdog in March set out tighter regulation for crowdfunding, including requiring firms running loan-based platforms to have provisions for loan repayments to continue even if the platform runs into difficulty.
Sources at some of the bigger aircraft financiers Reuters spoke to seemed sceptical about the idea of crowdfunding for planes. But the European Regions Airline Association said it could help drive interest in the sector.
"If it works, and the key thing is to see it in practice, it's an exciting idea to try and source funding in a different way," said Simon McNamara, head of the association.
He said regional airlines had complained of a lack of funding and perceived there was prejudice against them.
"Smaller means higher risk," McNamara told Reuters. "And generally speaking they're offering lower numbers of aircraft. So is it that attractive to finance smaller orders when there's rich pickings out there?"
During July's Farnborough Airshow, orders and commitments worth over $201 billion were placed, driven by orders for a revamped version of Airbus' wide-body A330 jet. That compares with the $72 billion reported for the last show in 2012 and $135 billion for 2013's Paris Airshow.
As the market grows and with low interest rates making it hard to find returns, newer investors have been looking at aircraft financing, such as pension funds and insurers.
"Margins are getting smaller," Michael Nosbuesch from KfW IPEX-Bank, which intends to provide around $1.5 billion of aircraft financing this year, told Reuters. "In general, there is too much liquidity and that means returns will stay under pressure."
The falling yields, which some see as coming down to below 10 percent from around 13-17 percent, are good for the regional market, Bradley-Ward said. "We are seeing more interest in the regional space especially now that the yields in the higher space start to reduce."
Regional aircraft financing is still a tiny part of the market, although KfW's Nosbuesch said more banks were looking at the regional market now.
"We have done some ATR funding, but it's relatively small and many airlines involved are very local with such a regional focus," he said.
At DVB Bank, for example, just over 6 percent of the aviation portfolio is made up of regional jets and turboprops.
(1 US dollar = 0.6030 British pound) (Additional reporting by Eric Auchard in Vienna; Editing by Pravin Char)
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