In a Bloomberg TV interview, Jet Business founder Steve Varsano explains how corporate borrowers, especially aircraft buyers, are more affected by commercial bank lending practices than by central bank rate cuts. He details that banks add substantial margins (300‑500 basis points) over base rates, enforce high loan‑to‑value (LTV) requirements, and are risk‑averse, preferring large‑ticket deals over smaller loans. Varsano notes that emerging‑market clients face even higher costs and that financing terms (7‑10 year amortization) are similar across major global banks, though geographic differences can affect pricing. He argues that policy focus should shift from lowering base rates to reducing banks’ funding costs and encouraging more aggressive lending.
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Welcome back to The Pulse. We're live from Bloomberg's London headquarters.
I'm Guy Johnson and I'm Francine Lacqua. Now let's get a perspective on the ECB and BOE's upcoming policy decisions from a corporate executive. Steve Varsano is founder and president of the Jet Business.
He says the central banks don't have a huge impact on companies. It's private banks which make a big difference. He's here to tell us what is going on. Effectively, what your clients see and what your business sees is not the base rate. It sees the bank rate. With a margin on it. And I guess that's what we've got to try and fix because the central bank can cut rates all it's like, but until it feeds through. That's right.
I mean, 0.5% doesn't mean anything if the borrowing rate to the end user is going to be 400 basis points over that. Yeah. And, you know, the other problem is, is who are they lending to? The banks don't want to lend to the people who want to borrow, meaning the emerging market areas.
What would you ask from the Bank of England today? Does it— I mean, I know it doesn't really affect, but I guess it affects the confidence or does it make people more interested in borrowing money and therefore being a little bit more confident about the future?
I mean, I think if you can— let's say for RBS, let's say it's owned basically by the government. You know, you can force them to say go out and loan money for 150 basis points over, you know, the LIBOR or the lending rate and, and just actually lower the loan-to-value. So actually your risk is not really there because if you're going to only loan 50% of the value of an asset, just give money out, start spurring the economy by lending more money and getting more money out there. They can do that if they want to. But the banks are so risk-averse that they're holding on to the money and they're not spending the money that the Bank of England's willing to lend them.
I hate to see the front page when it comes down to the fact that the Bank of England is helping people buy business jets. But that's a whole different argument. But this is, I guess, why the Bank of England and other central banks are moving the point of attack. Funding for lending is now the big new scheme. It's about lowering the costs for the banks. It's it's trying to encourage the banks to lend more. And I guess from what you're saying is that that is what we need to see put on steroids.
Yes, because the banks themselves, they're at the retail level. You know, they're saying we'll lend you money, but we want you to hold a third of the money we're going to lend you on deposit, whether through securities or through property or through cash. They're saying that you basically— we want you to be a private client. You know, they get to the point, you know, you have to have, you know, one leg and one arm and wear a blue shirt. I mean, the restrictions are pretty heavy. And so it actually, you know, deflects from the incentive to borrow.
Steve, does it affect your business? Does it— you know, are you concerned about the fact that visibility is very difficult? What do the clients tell you?
Actually, it doesn't affect our business that much because most of the clients borrow money after they buy the aircraft because they have a better negotiating position with the banks. When they already own the asset. If they're trying to borrow the money in order to buy the asset, the bank knows that they have more leverage because they have more restrictions.
They use it as collateral.
Well, when you buy the aircraft, you own it 100% with no debt on it. You go to the bank and now you're trying to borrow against it. So you're not— your rush to borrow the money is not as pressed. So you have more negotiating.
Choose a little bit more and you can, you can be a bit— what do I pay over, over base rates?
I mean, usually it's depending on on your credit is going to go anywhere from 300 basis points to maybe 500 basis points.
So I'm paying 5.5% for money.
That's correct.
Okay.
And the amortization usually is over 7 to 10 years.
So at what point does it hit your fundamentals, though? Is there a point where actually you say the situation in the UK or in the world economy is so uncertain that people will stop buying? I mean, do they buy the jets cash at first or—
Yes, most of the people do buy in cash on the top end of the market. The smaller airplanes, the smaller jets, those people borrow more of the money. The problem is the banks don't want to loan to the $1 or $2 or $3 million people. They want to loan to the $30, $40, $50 million people because it takes the same amount of work, the same amount of legal work and processing for one as the other. So why do a $2 million loan when you could do a $40 million loan? And all airplanes are priced in dollars. So this is why I keep referring to dollars.
Am I getting— am I getting— am I getting a better deal in America or am I getting a better deal here? Am I getting a better deal in Japan? Am I kind of— where should I be? Is there— you can move a plane around the world. This is a geographical footloose and fancy-free asset. Where am I getting the best financing?
I mean, most of the banks, the global banks, are loaning no matter— they're competitive no matter where they are. There's the Deutsche Bank, there's the Bank of America, there's Barclays. These guys are all very competitive. But if you are coming, it depends on where you're coming from. If you're from Ukraine or you're from Nigeria or, you know, you're in these kind of emerging markets, It's hard to borrow money. I mean, you can borrow it, but you're going to be paying even more than 500% over LIBOR.
All right, Stephen, thanks so much for that. Stephen Varsano, president and founder of the Jet Business.
Many questions still to be answered in my head. Anyway, let's move on time to today's company news.
