Whew! AirVenture (aka Oshkosh) 2011 Wrap-Up

The passion of Aviation was in the air at AirVenture Oshkosh 2011, and there was a sense of renewed excitement  throughout the show grounds.  With mixed weather – lots of humidity that followed our Virginia crew, and a mini dust-storm that followed the Phoenix crew – the heat was constant, but it didn’t discourage the crowds who turned out in great numbers – higher than the previous year!  The Friday event day alone had overflow parking lots crammed with fans trying to get their eyes on the new Boeing 787.

From a business perspective, activity was excellent.  Many of the attendees came through Hangar A (where AirFleet called home for the week) and wanted to talk financing for a purchase in the near future, or discuss options for refinance of their current aircraft.  It was encouraging to talk with attendees that stopped by about their plans to move forward and some have already secured financing through us after the show.  Further proof of eager buyers in attendance came in the form of manufacturers, from Piper to Flight Design, reporting multiple orders at the show.  Hopefully, the activity we saw in Oshkosh is a precursor to a continued rebound through the second half of the year.

But enough about business, AirVenture is a place for the aviation enthusiast to immerse themselves in what they love – forgetting about everything else for 7 days (or more, for those brave campers that set up house at Camp Scholler in the beginning of July).  From “FiFi” (the B-29) to the Boeing 787 Dreamliner’s debut; old and new aircraft were all on display, and the record crowds were eager to take it all in.   EAA also uses AirVenture as a platform to salute those that have used the power of aviation to defend our freedom, with a special tribute to 100 years of Naval Aviation this year.   There were other events throughout the week saluting Bob Hoover for his many achievements, or at forums with Chuck Yeager as he detailed his experiences as an Air Force Test pilot.   Along with these events, there were rows upon rows of Warbirds, experimental aircraft, and newly manufactured aircraft on the grounds.  For those camping out, there were plenty of evening events such as the night air show and the Theatre in the Woods showcasing aviation cinema and concerts.

We couldn’t possibly include all there is to see at AirVenture in this blog, but if you love anything aviation, there is something new for everyone to experience each year.  In case you missed it, please visit our Facebook page to see pictures of some of the highlights at this year’s show taken by our staff and friends!

We hope to see you at next year at AirVenture 2012 – the World’s Greatest Aviation Celebration!

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AirVenture 2011 Kick-off!

It’s already that time of year again!  Summer starts flying by and despite the seemingly long countdown that begins at Sun ‘N Fun each year, AirVenture Oshkosh always sneaks up on us.  Every summer in Oshkosh, Wisconsin, aviation enthusiasts descend upon the week’s busiest airport in the world for a pilot’s most exciting 7 days of the year.  For those of us working the show, it’s always a mix of work hard/play hard, which makes for an exhausting, but memorable show!

EAA’s 2011 lineup is sure to be one of the most memorable, with the arrival of the Boeing 787, a special focus on celebrating 100 years of Naval Aviation throughout the week, the 2nd annual night airshow, and other old and new events that help AirVenture live up to it’s motto as the “World’s Greatest Aviation Celebration”!

If you will be heading to Oshkosh, please stop by and visit us!  AirFleet Capital will be on-hand to discuss any financing questions you may have.  With great values on aircraft and the ability to fix historically low rates for up to 20 years… it is a great time to think about purchasing, upgrading, or refinancing!  Our Financing Booth is located in Hangar A, Booth 1143.   Safe travels to OSH – we look forward to seeing you there!

For more information on EAA AirVenture 2011, visit: www.airventure.org

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!

Understanding Credit Scores in Aircraft Lending – Part 2

Understanding Credit Scores in Aircraft Lending – Part 2

In last week’s blog we discussed the various components that build a credit file and credit score.  This week we will discuss the impact of these components on a client’s request for aircraft financing.  Specifically, what do aircraft lenders want to see in a Credit File when a client applies for an aircraft loan?

What Aircraft Lenders Consider in a Credit Score –

Payment History:  This is the most important part of the Credit evaluation. A Lender will want to see that the client is a reliable borrower, with recent history of paying debts in a timely manner.  As someone who is considering lending a client a substantial amount of money, this is a very important trait in a client.  Note that while significant events may remain on the credit bureau report for up to 7- to 10 years, the focus with payment history is moreso weighted on the past two years.

Public Records:   Checking for any collection accounts, tax liens, lawsuits, mortgage foreclosures, bankruptcies, and short sales is another major part of the credit analysis.  Depending on when these occurred, it may still be possible to obtain an aircraft loan, but any of these items reflecting as “current” issues (i.e. a currently open tax lien) must be resolved – and in some cases a period of time would need to elapse where credit is restored.

Comparable Credit:   Another component of the credit analysis is a review of comparable, large asset purchases similar to the loan amount that is being borrowed for the aircraft.  Has the client managed a debt of this size before, and if so with what kind of a track record?  It is often difficult for a client to purchase an asset as their first large asset purchase, as an aircraft is often considered a luxury item, and a lender will often look to a borrower to have secured some other large asset (i.e. a house) to establish a track record.

Score:   The ever-important “Magic” number.  Because credit scores are not an exact science, incorporating multiple factors as discussed above, it is tough to give an exact figure in terms of what a lender is looking for.  As a point of reference, most lenders see a score of 700 or above as a “prime” credit.  That being said, if it lays slightly outside of this, a borrower is not automatically disqualified.  Credit is just one component of the financial picture, and it needs to be evaluated along with  the borrower’s cash flow, liquidity and net worth for example.  In the same token, an 800 credit score is not an automatic approval, as all of the components to a credit application must be evaluated to form a credit decision on the client’s financials in their entirety.

Aircraft Pre-purchase Inspection Basics – Part 3

Okay, you have selected an aircraft to buy and proceeded into the pre-purchase inspection phase of the transaction.  Depending on the age and condition of the aircraft, you may find yourself on the 2nd or 3rd candidate and pre-buy depending if the earlier inspections revealed any major deal breakers.  Please be advised, you will almost never have an inspection come back without a discrepancy list, so it is best to expect this up front.  Even brand new aircraft have imperfections if you look close enough.  In addition, many mechanics almost see this as a matter of pride to find something wrong, thus the earlier reference to only making “airworthiness discrepancies” the focus of the inspection.  That is not to say that other items are insignificant, but first and foremost you want the aircraft to be safe and ready to fly.  It can be helpful to have a complete list including subjective items, but understand these would not be required under the previously recommended language to be covered by the seller.  However, you might find some room for concession by the seller if the list is excessive.

Back to interpreting the results; as mentioned earlier, you want to stay away from the big deal killers.  Beyond that, some buyers worry if all the compressions are not 80/80.  Please be advised that if the compressions are 80/80, then the mechanic either forgot to open the valve to the cylinder or their gauges need to be re-calibrated.  This is because the cylinders are not designed to make a perfect seal.  What you are looking for here is simply excessive leakage past the valves or rings (or worse) and reasonable consistency between the cylinders.  Trust your mechanics advice because there are several factors exceeding the scope of this article for examining and explaining variations in compression results.

Congratulations!  By this stage you have found an aircraft worthy of buying and it is just a matter of adjusting the final sales price as previously agreed with the seller based on the final findings of the inspection.  You are ready to take ownership of your new bird!  This is the time where you can release funds and complete the sale.  One final thought; keep in mind that aircraft practically take on a life of their own, so even the most detailed inspection may not prevent a completely unexpected “widget” to fail on the aircraft, maybe even the very next day.  Does this mean your mechanic made a mistake or you bought a lemon?  Absolutely not, it is simply par for the course.  Enjoy your new ride!

Understanding Credit Scores in Aircraft Lending – Part 1

Recently, we have received quite a few questions regarding credit scores – how are they determined and weighing the importance they carry in the ability to lend on an aircraft purchase.  We use credit scores to help quantify the credit risk of a particular customer based on historical payment performance and debt management.  A client is applying for a new credit account, so it’s only natural that the lender would want to see how they have managed their prior credit relationships.

Though it is by no means a perfect way of “getting to know” someone from a financial point of view (and shouldn’t be used as the only tool to evaluate risk), it is a snapshot that provides a necessary piece of the puzzle.  Here, we will attempt to discuss the makeup of the credit score along with its role in our lending decision for aircraft buyers.

What makes up your Credit Score –
In general, credit scores are evaluated based on the following items in order of importance:

35% – Payment History: Does the borrower make their payments on time?  Any 30+ day late payments, collection items, bankruptcies, foreclosures, liens, etc., will lower the score.

30% – Amounts Owed: What portion of total credit available is being used?  If a large percentage of the total available credit is extended at a particular time, the appearance is that the client is over-extending themselves, or may otherwise be in a difficult financial situation at the time (i.e. working through an unexpected expense).  For example, if a borrower has a $20,000 limit on their credit card, and has $19,000 extended, this will reflect negatively on the Credit Bureau Report.  Generally speaking, the less a borrower uses of total available credit, the more positive the score impact.  *Please note: The credit report is a snapshot, so putting a large item on a credit card that a borrower intends to payoff that month, may still reflect lower scores if the information is pulled during the extension period.

15% – Length of Credit History: How long has the borrower been managing credit? In general, customers with a longer credit (and satisfactory payment) history will have higher scores.

10% – New Credit:  Has a new credit account been opened recently?  Searching for and opening multiple accounts in a short timeframe reflects greater risk and lowers the score.   When searching for credit, it’s highly recommended that an individual apply for the same types of credit in a short period of time.  According to the credit bureaus, this will have the impact of one credit inquiry, versus a search for multiple types of new credit in a short period of time (which would appear more risky)

10% – Types of Credit: What types of debt do you have? A good mix of revolving (Credit cards, retail accounts, etc.) and installment (car loans, home mortgages, etc.) accounts increase your score.   A history of managing the varying types of credit will help in your search for credit for more sophisticated borrowings (i.e. aircraft).

Depending on the type of debt you are applying for (home, car, credit card, etc), different scoring models can be used to evaluate your payment history. These models can provide slightly different scores even based on the same information from the 3 major credit bureaus (Equifax, Transunion, Experian). Since it is a major investment, aircraft scoring models are based on more conservative methods such as those used for a new mortgage.

Want more information on understanding the Credit File?  We recommend www.myfico.com/crediteducation/articles, which has exceptional information on educating borrowers on how to manage and improve credit scores.

In the next blog we’ll discuss the Credit Score and how aircraft lenders analyze the credit file in underwriting requests for aircraft financing.

Why Do “I Fly America”?

Why do you fly?  There are probably too many answers to list here.  But wouldn’t it be helpful to have a source that takes those many reasons into account by offering practical resources and benefits for pilots?  I Fly America (IFA) is a benefits-driven pilot organization for all types of pilots – an organization for the “everyday” pilot.

Every organization, including I Fly America, has a unique offering and adds value to a particular segment of people.  It’s that value that defines the organization and helps you decide to join.  IFA is “working to promote flying safety, affordability, growth and fun”.  The organization does this by offering resources to support you in your everyday life, not just all aspects of the actual flying (which of course is a big part), but also why you go flying.

Many of our customers purchase an aircraft primarily for business purposes.  But similarly, most of our customers also enjoy the added benefit of aircraft ownership because of the ability to use it for fun –  family vacations, special occasions, or that $100 hamburger (that hamburger has to cost at least $150 by now).   I Fly America benefits include discounts on Lodging, Auto Rental, even Theme Parks, Ski Resort and Movie Ticket Discounts.  IFA keeps you and your family’s everyday activities in mind – providing well-rounded benefits not just for the flying, but for when you arrive at your destination.

IFA boasts other benefits including helpful Aviation Safety Information and a Medical Examiner Directory, along with Aviation Education and Training Resources.  IFA keeps you in touch with different air show and other aviation related events;  just check out the AirShows database on their website and you can see the events scheduled in your area.

The organization also focuses on the practical needs of a pilot and aircraft owner, such as financing for your purchase or refinance through the I Fly America Finance Program (sponsored by us, AirFleet Capital), an Aircraft Insurance Program, and discounts through MetLife for your home and auto insurance needs.

When you are a part of aviation, your airplane is not just a tool used to get from one place to the next, but rather flying becomes a way of life for pilots and owners.  I Fly America is an organization that helps give you the resources to make your everyday flight and the enjoyment of your travel destination a little easier.

AirFleet Capital has been a proud sponsor of I Fly America since early 2004.  We encourage you to learn more about I Fly America and join the organization today at www.iflyamerica.org.  Better yet, get an aircraft loan quote through the I Fly America website, and get a free one-year membership to I Fly America.

Tax Time Extensions and the Impact on Financing an Airplane

April 15th – the traditional deadline for filing your personal tax returns in the United States (technically, it was April 18th this year).  Did you file an extension this year?  If so, let’s evaluate the impact on the documentation needed for your next airplane loan.

As you likely already know, the extension – filed with an IRS form 4868- requires you to estimate your tax liability for the tax year.  The extension provides you with 6 more months to file the formal return (October 17, 2011 for this year), and we find the extension process relatively common for business owners or buyers with multiple income streams.  After this  6-month window, you would need to have formal approval from the IRS for any further delay, and we have seen this authorized in very rare cases for clients residing outside the country or clients impacted by a widespread natural disaster (i.e. Hurricane Katrina).  More information on extensions can be found at: www.irs.gov/newsroom/article/0,,id=108542,00.html

By way of background on the loan underwriting side, typically an aircraft lender will want to be familiar with a client’s most recent 2-3 years’ income in order to identify the excess cash-flow available for aircraft ownership (i.e. does this borrower have an extra $1,000 available each month to own the aircraft).  In preparing this analysis, the underwriter will often request a client’s most recent 2-3 years’ Federal Tax Returns, and match this income stream to a client’s current obligations. If the most recent Federal Tax Return is from 2009, the underwriter will need more information to make a judgment on the current cash-flow picture, as the most recent information provided would be at least 16 months old, and not nearly a picture of a client’s current financial situation.

How do lenders bridge this gap?  First, the IRS Form 4868 – the Application for Extension of Time to File, as prepared by the client’s CPA. This form estimates the 2010 tax liability and the lender may use this to a limited extent to divide into the client’s past Federal tax rate and project estimated 2010 personal income (as was needed in preparing this form).  Often times, this form, coupled with year-end income information (i.e. W2s, 1099s), will prepare a partial picture of the past year’s income AND the taxes that have or will be paid.

If a client has business income, it is also common to provide year-end financials for the business (Profit & Loss Statement, Balance Sheet at year-end), whether prepared by an accountant or prepared internally by the company’s financial officer.  Note that the quality of these year-end figures may drive the successful outcome of the underwriting.  For example, if a client has their financials reviewed or audited by a CPA each year, providing these reviewed or audited financials (including related statement notes), along with the additional personal information outlined above, may complete the picture of a client’s most recent years’ income.

However, even with the compilation of information outlined above, a client may find difficulty with the financing process if the client has seen a significant swing in income in the past year, and the Tax Return is not finalized.  This comes into play mostly when the swing was an upward swing that deviates considerably from prior years, and this increased income level is to be used to support the loan.  In cases like this, it’s best to get the Tax Returns completed as quickly as possible (with all CPA adjustments), to demonstrate the increased cash-flow with the final independently-prepared Tax Return.

Winter Thaw…

As March roared in, it was that time of year again, time to trek through the melting snow (or still-falling in our case), to get out and meet with some of our general aviation partners.  With our new office in Arizona, we have become accustomed to ignoring the existence of weather, thinking it’s 70 and sunny everywhere in the country.  Our first trip of the year to the Northwest was a wake-up call!

But it wasn’t just the freezing rain/snow we encountered, shocking us out of our eternal-summer mode; it was also the prevalence of aviation in the Northwest – the deeply rooted reliance on its existence, and the increasingly positive (albeit still cautious) demeanor of each person we met with.   As a point of reference, we like to lengthen our time spent around aviation events and extend our stay to meet more personally with professionals that are in touch with buyers every day.  It’s a great way to keep in-tune with the market and gives us excellent visibility of the current buying environment, right where “the rubber meets the road”.  We also like to add that personal touch to remind people that we’re still around and interested in helping customers buy!

We started with a trip to the Northwest Aviation Conference on a Sunday afternoon.  Although Sunday afternoons at airshows are usually painful, there was something different when we pulled up in Puyallup, Washington (outside Seattle).  Right away, we noticed the number of cars in the parking lot, and then the number of people who had actually made their way from the lot to the exhibit hall, followed by the most important, positive vibes coming from aircraft dealers who have been beaten up the past 24 months.  The (recently) familiar down-trodden whispers had given way to a (recently) unfamiliar buzz about how things were improving and willingness to share with each other – maybe a kinship that we were survivors after the storm?  This continued as we traveled to airports around Seattle, over to Spokane, and down to Boise.  Things haven’t rebounded over night, just a cautious optimism of true signs of improvement.

Each person we came across this past week seemed to feel change (even if there wasn’t always a quantifiable one) in our industry regaining it’s legs.  If nothing else, it was a feeling permeating those of us that are nearest and dearest to it’s booms and busts.  There may not be another boom in the foreseeable future, but we were encouraged to see the dark cloud and look of despair that had become all too familiar since late 2008… begin to give way.  At this point, that is all we are asking for!

2010 Year-End Deadlines to Finance your Aircraft Purchase

Another December is upon us, and this tends to be a very busy time of year in aircraft sales.  If you are interested in financing a purchase before year-end, please keep these dates in mind to prepare for a closing in 2010:

December 15: Last day for complete credit application submissions for loans above $1 Million to arrange financing before year-end

December 20: Last day for complete credit application submissions for loans below $1 Million to arrange financing before year-end

*Please note: applications can still be submitted/closed after these dates, but meeting year-end goals may be in jeopardy.

December 24: Christmas Eve (FAA closed)

December 30: Last day to close on an aircraft purchase in 2010

December 31: New Year’s Eve (FAA closed)

Plan ahead and note that weather can impact the best-laid plans (Oklahoma City has been known to get weather this time of year – 3 years ago, the FAA offices were shut down for two days due to an ice storm).

Please contact AirFleet Capital at 800-390-4324 or http://www.AirFleetCapital.com for details on our financing programs.