ISTAT Definitions UPDATED ACTUAL
Questions and CORRECT Answers
Advisory Circular (AC) - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - Secured asset financing, with credit
emphasis on the ownership of, or lien on, such assets
as accounts receivable, inventory, machinery and equipment.
Balloon Payment - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - A technique for assessing the present
value of future payments which takes into account the
time value of money.
Dry Lease - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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) - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - A debt security in which only the equipment
used as security is available as remedy to the
Questions and CORRECT Answers
Advisory Circular (AC) - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - Secured asset financing, with credit
emphasis on the ownership of, or lien on, such assets
as accounts receivable, inventory, machinery and equipment.
Balloon Payment - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - A technique for assessing the present
value of future payments which takes into account the
time value of money.
Dry Lease - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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) - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 - CORRECT ANSWER - A debt security in which only the equipment
used as security is available as remedy to the
