2014 Year-end Aircraft Financing

December is here and the countdown to year-end is upon us. With the year-end push, it’s important to remember the FAA and banking holidays and schedules if you’re planning to purchase, finance and close before year-end.  Couple this with planning for extraneous events (i.e. an ice storm in Oklahoma City that may shut down the FAA title office as happened last year), and we recommend considering the following timetables to meet a year-end closing target.December Note that Applications can still be submitted after these dates, but meeting year-end closings may be compromised.

  • For loans over $2 Million, we recommend submitting completed credit applications no later than December 9th.
  •  For loans between $750,000 and $1.99 Million, we recommend submitting completed credit applications by December 15th.
  • For loans below $750,000, we suggest a target of no later than December 17th for submitting a completed credit application.

Note also please the following this year:

  • December 24th – FAA typically closes early (Wednesday)
  • December 25th – FAA and banks are closed
  • December 26th – FAA projecting limited staffing (Friday)
  • December 31st – FAA typically closes early (Wednesday)

Aircraft Financing – Interest Rate Update

Interest rates remain very attractive for aircraft buyers.  That, coupled with great values, makes for a uniquely buyer-friendly market that hasn’t been seen in recent history and may not be duplicated for years to come.  It’s a wonderful time to purchase!

In the past 90 days, we have seen relatively level underlying rates; a slow, softening in rates through December and January was met with a slight uptick in February.  However, rates remain lower today than they were in early 2011, and have been hovering at this low-point for about 7 months, as illustrated with the chart below (Source:  Treasury.gov – using the 3-year Treasury rate in this example from January 2011 through February 2012).

While the FED has committed to keeping rates low through the next 12-18 months, we are likely to see increased pressures on the underlying rate market if fuel prices or inflation tick-up more aggressively.  The general sense is that we might start to see some increases as we move further into 2012, but the increases are expected to be minimal at most, likely keeping rates at or below averages seen over the past 24 months.

AirFleet offers a selection of fixed and variable rates to match a client’s particular rate-risk desire.  Please call us at (800) 390-4324 to get a specific quote for a fixed-or variable-rate product.

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.

Oshkosh Unraveled – a look back at AirVenture 2010!

AirFleet Capital has returned from a week at EAA AirVenture 2010.  Despite the torrential rains that threatened to turn the World’s Greatest Aviation Celebration into a wash-out, thousands still rallied to Oshkosh, Wisconsin (temporarily coined “Galosh-kosh”) for the event!  The weather during the show was great and with new daily events, a revamped Warbird area, the first-ever EAA Aircraft Auction, and revolutionary indoor plumbing in Hangar C – it was another great year!  AirFleet Capital was there to discuss aircraft financing with customers in our usual Hangar A space as well as “all-hands-on-deck” in the Auction Center helping bidders and sellers prepare for the main Auction event on Saturday, July 31st.  We are looking forward to many more to come!

We spoke with many customers interested in financing a new purchase, as well as those looking ahead to the next year as a purchase time frame.  It is always great to meet our current customers face to face at AirVenture each year, as well as new customers looking to employ our assistance for their aircraft ownership goals.  A big thanks to everyone who stopped by to see us. We look forward to seeing you again next year – Happy Flying!

Questions Aircraft Loan Underwriters Ask – Aircraft Information (Part 5 of 5)

As part of securing an aircraft loan, an underwriter will need to review the following: 1.) Credit Application, 2.) Credit Report, 3.) Cash Flows, 4.) Net Worth, and 5.) the Aircraft information itself.

As a part of an educational series, we are addressing each of these components separately and reviewing some of the questions the lender tries to answer through analysis of a client’s credit package.  This should provide some insight into what a loan officer is trying to accomplish by requesting certain information.

In this article, we’ll discuss aircraft information and how that affects underwriting and loan programs:

1. Why do we need a spec sheet? In order to finalize a financing approval, an aircraft needs to book out (based on current market value as represented in Bluebook or VRef software).  We will use the spec sheet as a means of gathering all of the necessary information and making our book value as accurate as possible.  Year/make/model, engine and airframe times, dates of upgrades, and damage history should all be recorded so that we may accurately reflect these in the final value.

2. How does type of aircraft affect financing? AirFleet Capital offers financing programs for various types of aircraft – jet, turboprop, piston, sport, helicopter and experimental.  Due to the unique nature of each category, terms will vary for each one.  Standard terms are available on most jet, turboprop and piston certified aircraft (15% down for 20 years) since they have a history of market acceptance.  Sport aircraft are slightly more restricted (higher down payment and shorter term) since it is a new market comparatively and banks are still getting comfortable with market acceptance and resale values.  Experimental aircraft are the most restricted as there is no valuation guide.  Helicopters are a different beast altogether and generally require 20% down for terms to 10 years (sometimes longer).

3.  How does age of aircraft affect financing? In general, the older the aircraft, the shorter the financing term.  Depending on the type of aircraft, the age limit will vary.  Piston aircraft 1975 or newer, terms are 20 years; older than 1975, terms are 15 years.  Turbine/Turboprop aircraft have tighter guidelines – generally 1980 or newer for turboprops and 1985 or newer for turbine aircraft.  Also, aircraft with over 10,000 hours will limit the program options we have.

4.  How does price/value affect financing? In general, as the loan amount increases, the rate decreases.  In addition, you will often find that the lower the loan-to-value (loan amount relative to the book value aka LTV), the better the rate – often with the lowest rates at 70% LTV or better. Lenders are also interested in the aircraft value to ensure they aren’t financing more than a percentage of fair market value.

5.  How does aircraft utilization affect financing? As the utilization of an aircraft increases (leaseback or commercial use), the depreciation of the value of the aircraft is accelerated.  The increased wear and tear of a higher utilization environment coupled with the increased engine and airframe time will accelerate the depreciation, particularly when compared to aircraft of similar make and model in a traditional utilization profile (private use).  In order to offset the effect this will have on the value, financing terms are set to protect both the customer and the lender by tailoring the down payment, term and rate to utilization.  As annual utilization increases, the loan programs will require higher down payments and shorter terms.

The Benefits of Pre-Approval

The Benefits of Pre-Approval

Pre-approved for aircraft financing is an often misunderstood term.  Most people think it’s like a pre-approval for a home mortgage.  For a house, the bank has run some basic numbers, but not really started digging yet.  At first blush, things look good so, barring negative discoveries in the future, you are approved before they have really taken a look at your financial information.potw01_1508

Pre-approvals for aircraft financing are actually the same process as the approval that every applicant goes through with their aircraft loan.  The only difference is whether or not the customer has settled on a specific N# plane yet.  With an approval, you are approaching the underwriting certain of an aircraft choice; specifically stating the flying machine you want to buy.  With a pre-approval, you are getting approved for X number of dollars in a certain category of aircraft (single engine pistons, sport, commercial, helicopter, etc).  You want to be able to buy an aircraft of that type that costs X dollars or less and take the pre-approval to potential sellers to show the seriousness of your intent.  As well, you want to shop with confidence knowing that you have financing in-hand.

When a customer finds that special aircraft, its purchase price and valuation are submitted to the bank.   As long as the aircraft books out, the underwriter simply fills in the holes in the various forms that pertain to specific aircraft.

There are a few advantages to pre-approvals.   First, customers have greater bargaining power when they go to sellers.  They can show them the approval, indicating their seriousness.  This ups the buyer’s commitment to the deal and shows the seller that the buyer is a serious prospect.  A sale in hand is worth two in the bush, after all.  In addition, it simplifies the closing process.  The biggest obstacle to a timely closing is the customer’s ability to get complete documentation for their approval.  Since the pre-approval is the same thing, it is already taken care of and a non-issue.

Other than the specific aircraft selection, both processes are the same.  If you have any questions about aircraft loan pre-approvals or anything else finance related, please feel free to give AirFleet Capital a call.  Until Next Time, fly safe!

Slow Improvement, but Challenges Remain

First the good news – aircraft inventories are starting to shrink.  According to the UBS Business Jet Update distributed on Friday, business jet inventories have declined for the third time in the last four months.  Most importantly, young aircraft inventories (inventories for aircraft built in the past 10 years) have decreased 10% from the peak earlier this year.  In order for the aircraft manufacturers to start cranking up their production lines again, we’re going to need to see the high levels of “young” inventory disappear, which will also help stabilize prices.AOPA 2001d - JetProp

The General Aviation fleet inventory, as represented by one online sales resource has dropped 7% since the high-point in April 2009 – down to its lowest point of the year, with signs that the best of the bargains are disappearing.

By all accounts, activity has increased since early this summer, and this is validated by the uptick in sales of both General Aviation and Business Aviation aircraft (and decreased inventories).  However, we have a ways to go to dig ourselves out of this hole.

Banking appetite continues it’s return in support of aircraft financing, however there’s still a deep sense of “the other shoe is about to drop” in the marketplace.  Call it our general appetite for apocolyptical scenarios, but it didn’t take too much “uncertainty” in the markets last week related to unemployment (higher than expected), bank failures (anticipating many more), and manufacturing indices (lower than expected) to rattle the cages and send the baby bulls running for cover.

Most telling of the state of our market, Teledyne Continental Motors, Inc. (TCM) announced a work stoppage and shorter work weeks for salaried employees starting this week (http://tiny.cc/QjCl8).  TCM also announced week-long plant closings in November (Thanksgiving), December (Christmas), and mid-January.  This is a clear sign that TCM doesn not expect new aircraft sales to increase until well into 2010.  Likewise, rumblings of rolling plant closures seem to persist for production into Q1 2010 for many OEMs.

So the good news is that we’re hearing less and less of “the sky is falling”, but we still don’t hear enough people arguing that it’s not.

How Exactly Does Aircraft Financing Work?

sportcub9_lgWe at AirFleet Capital frequently receive the following question when we talk to prospective customers – “how does aircraft financing work?”  It’s a great question because aircraft financing for general aviation (GA) aircraft really is unique.  We have a sample quote below for a typical aircraft that AirFleet Capital would finance.  We’ll use its different parts to serve as the template to guide through the components of aircraft financing.

Sample Aircraft: 1997 Mooney Bravo
Purchase Price:
50% personal, 50% business
Down Payment:
$27,000 (15%)
Finance Amount:
Interest Rate:
6.5% fixed
Term / Amortization:
20 yrs / 20 yrs
Monthly Payment:

AirFleet Capital finances piston-driven, turbo-prop, and jet aircraft.  Piston aircraft manufactured before 1960 get increasingly harder to finance as they get older.  Each aircraft in this age range would have financing offered on a case-by-case basis.  However you will find that aircraft manufactured in 1970 or newer are typically easier to finance.  Older turbo-props and jets have more restrictions, typically with aircraft older than 1980 being harder to finance.  Financing for these aircraft are also offered on a case-by-case basis, but there is a strict 10,000 hour airframe limit.

Purchase Price & Interest Rate
The purchase price is closely related to the offered interest rate.  Unlike other assets (homes, cars, boats) the aircraft’s purchase price and the respective loan amount is what drives the interest rate charged, not the borrower’s credit score.  Relevant thresholds are the $50,000, $100,000, $250,000, and $1,000,000 marks.  Generally, higher loan amounts see lower interest rates, with some exceptions.  The standard rate program is fixed.  There are some variable rate programs available today, but they are not common.  Interest rates will be higher for commercial use aircraft.

Aircraft usage is an important component as well.  Aircraft that are used for personal or private business (part 91) use have lower down-payment requirements, longer terms, and lower interest rates than those used for commercial use (charter, flight school, etc).  This is due to the increased utilization of commercial-use aircraft.  These aircraft often fly a lot more each month; resulting in higher wear and tear which collectively devalue the asset faster.  Loans are structured to compensate and prevent owners from being upside down.

Down Payment
A standard down payment is 15% of the purchase price.  The standard used to be 10% before the financial crisis and the devaluation trend of all aircraft in the past year.  GA aircraft financing does not feature 0% down programs.  In some cases, 10% (with a rate premium) may be available for a client with exceptional credit, but the client may pay a premium rate-wise.  Commercial use aircraft require between 20% to 30% down, depending upon the length of the term desired.  Typically, the higher the down-payment, the longer the term available.

Term & Amortization
Generally terms and amortizations, are for the same length of time.  Some balloon programs exist where you will have amortized payments for a 20-year schedule and a 5-year term – with a balloon coming due on the balance of the term (a principal balance would be due).  Aircraft manufactured from 1976 and on can have terms up to 20 years, while aircraft older than this will have terms between 10 to 15 years maximum.  Commercial use aircraft will also have shortened loan lengths, as the aircraft devalues more quickly in a higher use environment.

Monthly Payment

The monthly payment works just like a mortgage payment, with mostly interest and little principal paid down each month in the first few years.  For example, with a 20-year term, if a client makes the minimum monthly payments they’ll gain about 2% equity (principal paid down) in the first year.  As time goes on, the principal increases and the interest decreases.  Often times with GA aircraft loans, there are no pre-payment penalties, so you can pay the loan down early without incurring additional costs.

This just about covers all of the nuts and bolts to a standard aircraft loan quote from AirFleet Capital.  If you have any questions, feel free to post below or you can contact us.  One of the most common introductions we hear starts with “I have this plane I’m looking at…”

Questions Aircraft Loan Underwriters Ask – Part 3

JetPreview OAK columbiaAs part of securing an aircraft loan, an underwriter will need to review the following: 1.) Credit Application, 2.) Credit Report, 3.) Cash Flows, 4.) Net Worth, and 5.) the Aircraft information itself.

As a part of an educational series, we are addressing each of these components separately and reviewing some of the questions the lender tries to answer through analysis of a client’s credit package.  This should provide some insight into what a loan officer is trying to accomplish by requesting certain information.

In this article, we’ll discuss the evaluation an underwriter makes to determine if an applicant can afford the new monthly payment of an aircraft loan – the applicant’s Cash Flows, often the most important element in underwriting a traditional Aircraft Loan:

1. How much debt does the client currently have (monthly payments)? Step one is to analyze a client’s current obligations, which will subsequently be included with the aircraft loan and compared against the client’s income.  Included in the debt calculation along with the new aircraft loan will be payments for mortgage, revolving debt (credit card), installment debt (auto loans, etc), outstanding notes and any other monthly obligations listed on the credit report or personal financial statement.

2. How much does the client make (income)? This may sound easy, and sometimes it is when evaluating a client who has an annual salary as their sole source of income.  However, in many cases, a borrower will have a more complicated income picture, and may pass-through non-cash losses.  In addition, income may come from salaries, rental properties, royalties, capital gains, businesses clients own, corporate distributions, farming, or other sources.  Lenders will typically need to measure against a historical standard – often the past 2-3 years of the client’s income as demonstrated through tax returns or audited financials.  Depending on the complexity of the financials, the underwriter will add back income where they can in order to get an accurate picture of true income from the tax returns/financials (as oftentimes, customers will expense or depreciate items for tax purposes that do not reflect a true representation of cash-flow).

3. What is the personal debt-to-income ratio? Once the true income and monthly debts have been calculated, underwriters will formulate a debt-to-income (DTI) ratio.  This will compare a client’s historical monthly income versus the total of monthly payments.  Since no tax, aircraft expenses, or other living expenses have been taken out, the underwriters like to see the DTI at 40 – 45% after the aircraft payment to leave extra money for these other expenses.  This means that monthly payments cannot add up to more than 40-45% of total monthly income.  (For example, if you make $1,000 a month and the monthly payments on the items listed in question #1 add up to $400 per month, then you have a 40% debt-to-income ratio).

4. What does the business cash-flow picture look like? Many aircraft buyers are also business owners, so in addition to the personal debt-to-income ratio, the underwriter will also evaluate the business cash flows, also known as Debt-Service Coverage Ratio (DSC).  The DSC ratio is one common manner of evaluating this corporate cash-flow picture, and presents a picture of the cash available to meet the annual debt payments of the company when including the aircraft loan (if appropriate).  A DSC of less than 1 typically means the company is leveraged, and may not be able to meet all of its payment obligations.  Our underwriters generally look for this ratio to be 1.25% or higher to demonstrate the company is able to meet its current obligations with a small excess for other expenses, savings, etc..

5. Are the cash flows growing/ shrinking? 2 to 3 years of personal and business tax returns will be requested from a client in order to take a historical look at cash flows.  Coupled with year-to-date information (interim financials since the tax returns were filed), this allows the underwriter to sense any trends in income.  Is the trend positive, negative, or stable?  In addition to income trends, underwriters look at trends in debt.  Has the customer recently opened a large number of new accounts or significantly increased their financial obligations?