Activity picks up!

As we gear up full swing for flying season all over the country now (reality check for our AZ offiice, “wait, it’s not beautiful flying weather all year everywhere?”) we are encouraged by the number of inquiries we have received the past few months regarding aircraft purchases.  Over last year, our leads are up 11% in 2012.  Many of those that we are talking with are getting back into the game after feeling like they’ve been “sitting on the sidelines for too long”.  As things stabilize, those that have weathered the storm are showing signs of increased consumer confidence.  It is certainly still a wait-and-see type mentality for many, but just the noticeable increase in interest has given us cause for anticipation. 

Last week, we attended regional Aircraft Expo shows in both Texas and Arizona.  As opposed to the preceding few years where the crowds had thinned at these events, attendance seemed to be up significantly this year!  We spoke to many more potential buyers and all the other exhibitors seemed to share our sentiment.  If you are one of those buyers who is ready to dive back into aircraft ownership, or looking to refinance at our historically low rates, please give us a call to discuss Aircraft Financing programs to fit your needs!

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Tax Incentives for Aircraft Buyers in 2012

May has arrived, and just when you thought you wouldn’t have to talk about taxes for another 10 months, we bring it up again!  But this time, it’s all about keeping your money! 

In order to help stimulate economic activity, Congress passed tax law for 2012 that makes buying an aircraft very attractive this year.  If you are a business owner with a tax appetite and a need (OK, you really like to get behind the yokes for fun too!) to fly for business purpose, now is a great time to cash in on tax incentives being offered for equipment purchases.

New aircraft purchases (and in some cases, new equipment purchased for used aircraft) in 2012 are included in this category and allowed 50% bonus depreciation.  To take advantage of this allowance, the aircraft must be new, and used mostly for business purpose travel.  Contracts for the purchase of a new aircraft signed during 2012, and delivered during 2013, may also qualify under specific rules for the 50% bonus depreciation. 

Not to worry used aircraft buyers – though you cannot partake in the 50% bonus depreciation, used aircraft (along with new purchases) do qualify for the Section 179 Expensing.  This allows the buyer to write-off up to $139,000 in equipment for the year.  This Section is more specifically targeted for small businesses as it applies only to those that have an annual capital investment cost of less than $699,000. 
*Please contact an Aviation Tax Specialist for more details and to see if you qualify for these Tax Incentives.

Though this has seemed like normal practice in the last few years during the downturn, the tax environment is not always this friendly for aircraft buyers.  Take advantage of these great incentives (along with historically low prices on aircraft and even lower financing rates!) with an aircraft purchase before year-end.

An Early Thaw?

Let’s face it – it’s been a long couple of years.  Of course, there have been some bright spots and many things to celebrate along the way… but it’s about time we catch a break… a long, prosperous, stable one if we’re allowed to get choosey!  And now, at long last, there are some promising signs that we all might start being rewarded for our perseverance (read: insanity!).

Typically, as the economy goes, so goes the general aviation market with a lag of about 6 months.  With the more promising broader economic news we have seen in the past 90 days, it seems to be slowly warming up our industry now too.  We’re sensing  more consumer confidence as customers have begun jumping off the fence back into aircraft ownership.  AirFleet was pleased to see a measurable increase in our business last year, more particularly in the 4th quarter of 2011.

But don’t just take our word for it – according to an article by Kathy Finn on Reuters.com, many companies are predicting an uptick in aircraft sales/deliveries (Honeywell at 3-5% and Textron forecasting 11% growth) in 2012.  The momentum we reported on at NBAA in October also seems to have gained more speed the following months, with reported record attendance at the HAI Heli-Expo in Dallas two weeks ago (19,000).  At the show, Eurocopter reported that they sold more units (191) in just three days in Dallas as opposed to the entirety of 2011 sales (170)!

We certainly aren’t expecting a banner year, but for the first time in 3 years, we are sensing more stable/objective optimism throughout the economy and our market.  Along with many others, we are predicting slow, but positive growth in 2012.  And although most of the predictions may be modest figures, they are positive figures nonetheless… and how sweet thou art!

Aircraft Financing – Mid-Term 2011 Update

As the first 6 months of the year wrapped up, we’re taking a look back at what the much-anticipated first half of 2011 brought for aviation and the aircraft financing market.

After another tough year in 2010 in terms of aircraft sales, we were all looking forward to what the new year would bring.  It started off well, with the financing community showing increased appetite by lowering rates.  General perception was that we were through the bulk of the defaults, and lenders started getting more actively interested in seeking new business to start filling up portfolios again.  Although tighter than the standards we saw up to 2008, we are seeing loan approvals today that would not have been approved a year ago – and this has been a welcome shift and is great news for buyers, sellers, and financiers alike!

The standard is still “A” credit financial requirements for aircraft lending.  When we discuss “A” Credit, this typically refers to credit scores over 700, a debt-to-income ratio of 40% or below after the aircraft payment, good net worth, stable financial performance, and cash reserves.  It has always been this way with aircraft loans (there has never really been a sub-prime issue in this market), and while we saw some extra constriction during the downturn, it has not been as drastic as other sectors have seen (i.e. housing), due to the already strong standards and higher net worth aircraft buyers typically have.  However, a new focus has been placed on amount and verification of liquidity.  Liquidity is the borrowers’ personal and corporate cash, stocks, bonds, and other accounts that are easily liquidated if needed without a penalty.

As we prepare for 2011 to start heating up for a busy year-end, hopefully customers will realize even better corporate performance this year and start that year-end surge early, as some of the best deals are going away.  With great values on aircraft purchases, and the ability to fix low financing rates for up to 20 years, we think there hasn’t been a better time to buy!

ABC – Aircraft Financing in 2011

HAPPY NEW YEAR!  With 2010 behind us, we are gearing-up for a warm-up in aviation this year.  As the economy strengthens in other areas and buyer confidence continues to return, we are preparing for more interested buyers returning to the market.  If you are one of the lucky buyers, we have put together the ABCs of financing an aircraft to start-off 2011:

1.   Available – Money is available:  Despite tightening credit standards and a small constriction in terms of programs available for aircraft loans over the past few years, there is still plenty of money available for aircraft buyers.  We have seen lender appetite increase quite a bit in the past few months for good, quality loans.

2.  BUT … underlying rates have increased:  Over the past 30 days, the rates that we base aircraft lending off of (longer-term treasuries) have gone up substantially – in some cases, 70 to 100 basis points.  We have not seen a shift in our rates yet; however, if these increases continue, a bump-up is on the horizon.  Apply today and lock-in a pre-approval to hold your interest-rate for up to 30 days.

3.  Cheap – rates are still low for now:  With the lowest rates we have seen in years, the ability to lock these low rates for up to 20 years, and increases looming if the current underlying rate-trend continues, now is a great time to finance!  In addition, aircraft values are bottoming out – jump in now and get a great deal all around!

We can’t predict the future in terms of where the rate and aircraft value markets will go next, but it doesn’t get much better than this…. so WHY WAIT?  It’s a new year and a new attitude is afoot among buyers – let’s Get Flying!

Financing in Today’s Market – yes, you can get an aircraft loan!

There has been a lot of talk recently about the lack of financing availability in the market, especially for the larger, older, business jet buyers.  However, it is noteworthy to point out that there’s a gap in how the bizjet market and how general aviation (owner-flown) financing is faring.  That said, there is a bias toward newer aircraft, but in our market we are financing piston singles and twins aged 1970 and newer.  For turboprop and turbine aircraft we finance starting 1980 and newer, but have made exceptions for strong credit transactions that are older.  Note that our market is the owner-flown market up to $5MM in purchase price, so our market differs a good bit from the larger bizjet market referenced in the article.

On piston singles and twins we’re financing up to 85% of the purchase price, but would agree that 20% down is preferred for the larger or more complex aircraft.  This stems from the additional impact on valuations the market has seen – more pointedly on the older and more complex turbine and turboprop aircraft.  We still finance up to 85% for turboprop aircraft, but then lean toward 80% financing with older jet aircraft.  Again – not in all cases, as we have made exceptions for later-model light jets with 85% financing this year (again, on the lighter end).

We are also still financing upgrades for aircraft.  Paint and interior have always been difficult as the value of a new paint or new interior depreciates so quickly.  However, we’re fully engaged in financing upgraded avionics and other airframe or engine upgrades/ modifications.  This ranges from someone adding a Garmin 530 to their panel, to speed mods or turbine upgrades like a JetProp conversion.

In terms of whether you need impeccable credit to be approved – that’s a tough one, as it is in many cases it is subjective.  Credit requirements have increased, but only marginally.  However, when you overlay tighter credit requirements with poorer corporate financial performance (or personal income), we hit a similar deadlock.  Rather than the banks’ being tighter, however, we would offer the perspective of the changes in the overall financial condition of our buyers.  The buyer group as a whole has deteriorated, so finding buyers who have not been impacted significantly through this downturn can be difficult.  Most potential borrowers have seen a significant decrease in their credit profiles in the past couple years.  It is difficult for a bank to lend on someone with decreasing income and a deteriorating financial condition, without first seeing that their income/ financial condition has bottomed-out and is improving again.  Generally speaking, a lender will want to see that the borrower has stabilized their financial position and that the new position they are at today supports the financing request.

In addition, buyers should be prepared to provide more documentation than they may have a few years ago.  It’s not to the extent of a home mortgage where you need to explain why you had a $200 deposit into your savings account 6 months ago, but with the additional scrutiny banks are feeling from their regulatory bodies, a lot of the assumptions made in the past now need to be verified.  For example, if a client says they have $1MM in their bank account, they now need to prove this with a bank statement.  Also, there are no “no-doc” programs available, so clients need to provide full documentation of income and all income sources (to include personal and business tax returns).

Ending on a positive – some of the larger national banks have seen the greatest impact on their lending capabilities, as the regulatory scrutiny they are seeing is intense.  However, our general aviation financing segment is supported by a mix of these larger national institutions as well as a strong network of regional banks.  In a nutshell, healthy banks have healthy appetites, and we’ve seen this throughout the downturn.  While their appetite may have been lighter at the start of the slowdown, it has been strong and continues to get stronger.

Sun ‘N Fun Update

Mid-way through the Sun ‘N Fun fly-in and things have been heating up in Lakeland, Florida.  Although no official attendance statistics have been posted, the crowds have been steady and Lakeland Linder Regional Airport is buzzing with aviation enthusiasts enjoying near-perfect weather!

Per usual, there are hundreds of exhibitors with renewed zeal in 2010 to kick the airshow year off with a bang.  Along with the usual daily activities, forums, workshops, and demonstrations, SNF also premiered their new Exhibit Hall E this year and the Thunderbirds have been preparing for their daily airshows, guaranteeing more excitement and bigger crowds.

At the AirFleet Capital booth, many customers have been inquiring about aircraft financing programs and engaging us in conversation, wondering what’s happening in the lending market.  Quoting aircraft from an older Cessna 172 to a new business jet and everything in between, most customers we are talking with have a positive outlook on the upcoming year and are getting closer to making purchase decisions after maintaining a wait-and-see approach the past 18 months.  In polling other exhibitors and with confirmation of aircraft sales on the show grounds, everyone also seems to be sensing this same attitude shift among attendees – a refreshing change from the uncertainty at last year’s show!

Stop by and see us if you will be at the show – we are located in Hangar C Booth 53 and would be happy to discuss how our low financing rates can help you purchase that aircraft you’ve had tagged in your favorites the past year – Happy Spring Flying!

Spring Fever – Aircraft Market heating up!

With Sun ‘N Fun and the Spring buying season just around the corner to kick off the aviation year, comes a renewed zeal in the aviation industry – gearing up for potential buyers to thaw out and be itching to buy!  Although Spring 2009 was filled with uncertainty from sellers and apprehension from buyers, all signs are pointing to a much more optimistic and active spring in 2010.

We think now is a great time to buy, and below are our TOP 5 reasons:

1.  Rates are low: Rates (in the mid-6% range for the most part) are well below the historical average for aircraft lending rates.  With the ability to lock these rates for up to 20 years, by financing today, buyers are in an excellent position to minimize risk of the anticipated rate increases as the economy rebounds.

2.  Aircraft prices are low, but values are rebounding: Due to the large gap between number of buyers (few) and number of sellers (many) looking to unload their aircraft during the economic downturn, market prices for aircraft were driven down significantly in 2008/2009.  As market activity increases, it takes time for aircraft pricing to catch back up.  Buy now and catch the tail-end of this unprecedented buyer’s market, because once consumers start jumping back in to purchase, these prices won’t last long.  As proof of this, we have already seen values start to rebound after historical plunges last year.  For example, almost all Cessna 210s have increased in value in the past 4 months according to VRef.

3.  Lending markets continue to heal: It wasn’t uncommon a year ago to find that banks just weren’t able to focus on writing new business, given the extraordinary level of repossession activity in our marketplace.  In addition, those that were lending were often looking for clients to have significant liquidity to weather the downturn.  Now, lenders are hungry again and are turning their focus back to building strong aircraft loan portfolios.

4.  More market certainty: Although the economy has a long way to go to return to the days of abounding growth, things are looking up.  While businesses made dramatic adjustments over the past two years, their return to profitability can be seen both in tracking the stock market and moreso in our industry, in the increases in aircraft charter activity.  In addition, inventory levels for manufacturers are low, which is leading to restart or increases in production across the board.  As we see glimmers of light at the end of the financial crisis tunnel, many of us are still standing and much more positive about the future.

5.  Spring Fever: After all of the apocalyptic market news a year ago, most of us took the wait-and-see, conservative approach to spending.  Considering that an aircraft buyer today has weathered the worst of the storm, is finding open doors and great rates for financing, and is probably buying an aircraft 30% below where it was priced two years ago, the stars couldn’t be more aligned for an excellent buying environment.   And with one of the harshest winters on record giving way to sunny skies, aren’t you sick and tired of sitting on the ground?  Let’s get flying!

Fed Raises Rate – What This Means for Aircraft Financing

On February 18th, the Federal Reserve (the “Fed”) did something it has not done in quite some time – it increased interest rates, which had previously remained unchanged since the end of 2008.

The Fed raised the Discount Rate, which is the rate charged by the Federal Reserve on loans made directly to commercial banks (this temporary bank loan rate is very short-term,  usually referred to as the “overnight rate”).   Altering the Discount Rate does not directly change rates charged for home mortgage, credit card, auto loans, or aircraft loans.  Until recently, the Discount Rate was not a common mechanism used by financial institutions who were often borrowing from other sources rather than directly from the Fed.

The Fed traditionally adjusts the discount rate and the Federal Funds Rate as economic and monetary supply conditions warrant, and for more than a year these rates have been at historically low levels.  Last week, the Fed raised the discount rate by .25%; bumping it to .75%.  Though this does not immediately change the rates that consumers feel, it does signal that the ‘era of extraordinarily cheap money necessitated by the crisis is drawing gradually to a close.’[1]

To us in the aircraft financing industry, this is a sign the banks are stabilizing and that the Fed can take a step back from the unprecedented involvement it has had in the financial crisis.  While we do track broader market and Fed rates such as the discount rate, federal funds rate, and “Prime”, aircraft loan rates are often tied to a more complex set of underlying rates such as longer-term Treasury Bills.

Eventually, these broader market shifts will begin raising underlying interest rates, but it should be slow and controlled, and balanced with inflation.  No one at the Fed wants to upset the slow improvements in the economy over inflationary worries.


[1] In Surprise Move, Fed Signals Pivot to Normal Policy.  New York Times, Feb 18, 2009.  Chan. http://www.nytimes.com/2010/02/19/business/19fed.html