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.
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!).
The Business of Aircraft Financing 