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13 Bus. Law. 199 (1957-1958)
Developments in Commercial Aircraft Equipment Financing

handle is hein.journals/busl13 and id is 201 raw text is: January 1958 DEVELOPMENTS IN COMMERCIAL AIRCRAFT EQUIPMENT FINANCING By LEONARD D. ADKINS* and DeFOREST BILLYOU** New York City The purchase of commercial aircraft by American airlines has always presented serious financial and legal problems. The financial problems result from the high cost of the aircraft and the rapid development of aircraft transportation. In order to preserve their competitive positions and to be able to offer their customers the fastest and most comfortable service made available by the most modern planes, our airlines have had to undertake extensive financial commitments. The problems become increasingly serious with the development of the very costly jet and turbo-prop planes which are generally expected to replace, within a relatively brief period of time, a large part of the present fleets now used by our 13 major air carriers.' For the last five years local service carriers have been striving to acquire larger and more modern planes to substitute for the Douglas DC-3, a plane which for so long was the mainstay of commercial operation, but which today has many uneconomic operat- ing characteristics.2 Largely because of the rapid development .of aircraft transportation and commercial aircraft, the major and local carriers have, in general, paid small dividends, have retained a large part of their earnings and, until recently, most were the beneficiaries of air-mail subsidy payments. But even the most successful carriers have not been able to raise, through earnings or depreciation, amounts sufficient to pay cash for new aircraft they may need. SOME ASPECTS OF AIRCRAFT EQUIPMENT FINANCING To some extent, commercial aircraft financing has borrowed from precedents established in the field of railroad equipment financing,3 *Member of the Section's Committee on Corporate Laws. **Member of the Section's Committee on Developments in .Business Financing. 1. As of December 1, 1957, our 13 major air carriers were reported to have purchase commitments approximating $1.4 billion in connection with orders for 174 four-engine jets (Boeing 707's and Douglas DC-8's) costing approximately $5y million each, 40 four-engine jets (Convair 880's) costing approximately $3y4 million each and 116 four-engine turbo-props (Lockheed Electra's) costing about $2y million each. 2. As of November 1, 1957, 5 of our 13 local service carriers were reported to have purchase commitments in excess of $25 million in connection with orders for 50 two-engine 40 passenger turbo-prop (Fairchild F-27's) transports costing about $y million each. 3. As to railroad equipment financing, see Adkins & Billyou, Current Develop- ments in Railroad Equipment Financing, 12 BUSINESS LAW. 207 (1957); DUNCAN, EQUIPMENT OBLIGATIONS (1924).

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