ISTAT Definitions Exam Questions and
Answers
Advisory Circular (AC) - Answers -A publication of the FAA to inform the aviation public
of non-regulatory material of interest. Unless incorporated into a regulation by
reference, the contents of an AC are not binding. An AC is
issued to provide guidance and information in its designated subject area or to show a
method
acceptable for complying with a related Federal Aviation Regulation. EASA does not
have directly
comparable publications.
ACMI Lease - Answers -In an ACMI lease, the lessor (who may be another airline)
provides the aircraft, one or more
flight crews, maintenance for the aircraft, and insurance (usually hull and third party
liability).
The lease may set a minimum guaranteed number of block hours per month. Typically
an ACMI
lease may be for a few months or a few years. See also Wet Lease and Dry
LeaseAPPRAI.
Appraisal - Answers -A formal valuation of property made by a competent authority. See
special section in this
handbook for discussion of types of appraisals.
Asset Based Finance - Answers -Secured asset financing, with credit emphasis on the
ownership of, or lien on, such assets
as accounts receivable, inventory, machinery and equipment.
Balloon Payment - Answers -The final payment, which is substantially larger than the
other payments, of an amortized term loan
or lease. Less commonly, balloon payments may also occur periodically during a lease
term.
Bargain Purchase Option - Answers -An option given to the lessee to purchase leased
equipment at lease expiry for a price which is
significantly lower than the expected fair market value of that equipment at the end of
the lease.
Capital Lease - Answers -A lease in the U.S. is classified as a capital lease if it meets
any of the following criteria:
, The lease transfers ownership to the lessee at the end of the lease term.
The lease contains an option to purchase the property at a bargain price.
The lease term is equal to 75% or more of the estimated economic life of the property
(with exceptions for used property that is already near the end of its useful life).
The present value of minimum lease rental payments is equal to 90% or more of the
fair market value of the leased property.
Chapter 7 - Answers -A chapter of the U.S. Bankruptcy Code which provides the rules
whereby a debtor or creditor
may petition the court for the appointment of a trustee or receiver to supervise the
orderly
liquidation of a business.
Chapter 11 - Answers -A chapter of the U.S. Bankruptcy Code which provides the rules
whereby a debtor is allowed to
file for court protection. Such protection enables the debtor to continue its operations
while
undergoing reorganization. Chapter 11 also allows a creditor to protect its interests.
Discounted Cash Flow - Answers -A technique for assessing the present value of future
payments which takes into account the
time value of money.
Dry Lease - Answers -Traditionally in aircraft and marine leasing, an agreement that
provides financing only for the
equipment itself, and does not extend to personnel, maintenance, fuel and provisioning
necessary
to operate the craft. Corollary in marine leasing is a bare boat charter. See also "wet
lease."
ETC, Equipment Trust Certificate - Answers -A debt security issued by a trust and
secured by a mortgage, lease, mortgages, or leases, over
a single asset or group of assets. ETC's may be split into several tranches (slices with
unique
levels of seniority and typically unique interest and repayment terms and ratings).
EETC, Enhanced Equipment Trust Certificate - Answers -An EETC (usually referred to
as a "double-ETC") provides an additional liquidity reserve
(usually supplied by a rated bank) to pay interest for a specified period of time after a
default
within an ETC (which see above). Like an ETC, an EETC may be split into several
tranches.
Investment Tax Credit (ITC) - Answers -A provision of the tax code designed to
stimulate investment in capital equipment by
allowing a percentage of the purchase price to be credited directly against taxes due.
, Leveraged Lease - Answers -A leveraged lease involves at least three parties: lessor,
lessee and a lender. The lessor owns
the equipment and will generally provide a portion of the purchase price while borrowing
the
remainder, usually on a non-recourse basis, from the lender. The lessor thereby
enhances his
ability to purchase and own the asset using the capital of a third party.
Net Lease - Answers -A lease which provides that all costs in connection with the use of
the equipment are paid by the
lessee and are not part of the rental, e.g. taxes, insurance and maintenance are paid
directly by the
lessee. Note that most capital leases, leveraged leases and direct finance leases are
net leases.
Non-Recourse Loan - Answers -A debt security in which only the equipment used as
security is available as remedy to the
creditor. The creditor is not able to look through to all of the borrower's assets. See also
Recourse Loan below.
Operating Lease - Answers -For financial accounting purposes, a lease which does not
meet the criteria of a capital lease
(see separate entry). Also used generally to describe a short-term lease whereby the
user can
acquire the use of an asset for a fraction of its useful life. It is not common, but the
lessor may
pay for maintenance and insurance.
Owner Trustee - Answers -In a leveraged lease, the party who holds title to the
equipment for the benefit of the equity
participants. The owner trustee issues trust certificates to the equity participants,
maintains the
register, acts as the agent for such certificates, and makes appropriate filings to perfect
and
protect the lenders' interest in the collateral.
PTC, Pass Through Certificate - Answers -A security issued by a trust in the asset-
backed market representing an undivided interest in a
pool of debt securities. A PTC allows the bundling of multiple separate or groups of
assets in a
single transaction. A PTC may include notes issued in separate leveraged leases.
Purchase Option - Answers -The right to buy leased property at the end of the lease
term. In the U.S., if the tax characteristics
Answers
Advisory Circular (AC) - Answers -A publication of the FAA to inform the aviation public
of non-regulatory material of interest. Unless incorporated into a regulation by
reference, the contents of an AC are not binding. An AC is
issued to provide guidance and information in its designated subject area or to show a
method
acceptable for complying with a related Federal Aviation Regulation. EASA does not
have directly
comparable publications.
ACMI Lease - Answers -In an ACMI lease, the lessor (who may be another airline)
provides the aircraft, one or more
flight crews, maintenance for the aircraft, and insurance (usually hull and third party
liability).
The lease may set a minimum guaranteed number of block hours per month. Typically
an ACMI
lease may be for a few months or a few years. See also Wet Lease and Dry
LeaseAPPRAI.
Appraisal - Answers -A formal valuation of property made by a competent authority. See
special section in this
handbook for discussion of types of appraisals.
Asset Based Finance - Answers -Secured asset financing, with credit emphasis on the
ownership of, or lien on, such assets
as accounts receivable, inventory, machinery and equipment.
Balloon Payment - Answers -The final payment, which is substantially larger than the
other payments, of an amortized term loan
or lease. Less commonly, balloon payments may also occur periodically during a lease
term.
Bargain Purchase Option - Answers -An option given to the lessee to purchase leased
equipment at lease expiry for a price which is
significantly lower than the expected fair market value of that equipment at the end of
the lease.
Capital Lease - Answers -A lease in the U.S. is classified as a capital lease if it meets
any of the following criteria:
, The lease transfers ownership to the lessee at the end of the lease term.
The lease contains an option to purchase the property at a bargain price.
The lease term is equal to 75% or more of the estimated economic life of the property
(with exceptions for used property that is already near the end of its useful life).
The present value of minimum lease rental payments is equal to 90% or more of the
fair market value of the leased property.
Chapter 7 - Answers -A chapter of the U.S. Bankruptcy Code which provides the rules
whereby a debtor or creditor
may petition the court for the appointment of a trustee or receiver to supervise the
orderly
liquidation of a business.
Chapter 11 - Answers -A chapter of the U.S. Bankruptcy Code which provides the rules
whereby a debtor is allowed to
file for court protection. Such protection enables the debtor to continue its operations
while
undergoing reorganization. Chapter 11 also allows a creditor to protect its interests.
Discounted Cash Flow - Answers -A technique for assessing the present value of future
payments which takes into account the
time value of money.
Dry Lease - Answers -Traditionally in aircraft and marine leasing, an agreement that
provides financing only for the
equipment itself, and does not extend to personnel, maintenance, fuel and provisioning
necessary
to operate the craft. Corollary in marine leasing is a bare boat charter. See also "wet
lease."
ETC, Equipment Trust Certificate - Answers -A debt security issued by a trust and
secured by a mortgage, lease, mortgages, or leases, over
a single asset or group of assets. ETC's may be split into several tranches (slices with
unique
levels of seniority and typically unique interest and repayment terms and ratings).
EETC, Enhanced Equipment Trust Certificate - Answers -An EETC (usually referred to
as a "double-ETC") provides an additional liquidity reserve
(usually supplied by a rated bank) to pay interest for a specified period of time after a
default
within an ETC (which see above). Like an ETC, an EETC may be split into several
tranches.
Investment Tax Credit (ITC) - Answers -A provision of the tax code designed to
stimulate investment in capital equipment by
allowing a percentage of the purchase price to be credited directly against taxes due.
, Leveraged Lease - Answers -A leveraged lease involves at least three parties: lessor,
lessee and a lender. The lessor owns
the equipment and will generally provide a portion of the purchase price while borrowing
the
remainder, usually on a non-recourse basis, from the lender. The lessor thereby
enhances his
ability to purchase and own the asset using the capital of a third party.
Net Lease - Answers -A lease which provides that all costs in connection with the use of
the equipment are paid by the
lessee and are not part of the rental, e.g. taxes, insurance and maintenance are paid
directly by the
lessee. Note that most capital leases, leveraged leases and direct finance leases are
net leases.
Non-Recourse Loan - Answers -A debt security in which only the equipment used as
security is available as remedy to the
creditor. The creditor is not able to look through to all of the borrower's assets. See also
Recourse Loan below.
Operating Lease - Answers -For financial accounting purposes, a lease which does not
meet the criteria of a capital lease
(see separate entry). Also used generally to describe a short-term lease whereby the
user can
acquire the use of an asset for a fraction of its useful life. It is not common, but the
lessor may
pay for maintenance and insurance.
Owner Trustee - Answers -In a leveraged lease, the party who holds title to the
equipment for the benefit of the equity
participants. The owner trustee issues trust certificates to the equity participants,
maintains the
register, acts as the agent for such certificates, and makes appropriate filings to perfect
and
protect the lenders' interest in the collateral.
PTC, Pass Through Certificate - Answers -A security issued by a trust in the asset-
backed market representing an undivided interest in a
pool of debt securities. A PTC allows the bundling of multiple separate or groups of
assets in a
single transaction. A PTC may include notes issued in separate leveraged leases.
Purchase Option - Answers -The right to buy leased property at the end of the lease
term. In the U.S., if the tax characteristics
