Spring Fever – purchase and finance a new airplane!

It’s Flying Season!

Spring has arrived and across the country, people are gearing up (or at least daydreaming about it while they’re digging ou134399-stock-photo-green-dark-freedom-spring-flying-umbrellat!) to jump back into their airplanes.  Whether to  get out and see those clients you haven’t met with all winter, take the family to your favorite spring break destination, or just enjoy seeing the earth come alive from above, each of us start getting the itch after a long, cold season, to take flight.

AirFleet has seen some positive signs of the economy warming despite record low temps across the country this year.  With tax incentives extended to 2013 and the ability to still buy an airplane at a great price coupled with our low, fixed financing rates – this first quarter has been the busiest we’ve seen since 2008!  We have high hopes that the momentum will continue and increase as buyers with Spring Fever begin making purchase decisions.

Please contact AirFleet Capital to get an aircraft loan quote on that airplane you’ve been eyeing.  With flying weather and all the holiday bills paid off, it’s a great time!  You can call to discuss options with a financing specialist at 800.390.4324 or you may request a quote online.  If you are considering a purchase anytime this year, it is always good to get pre-approved for a dollar amount while you shop.  Approval is free and it allows us to be ready to close quickly once you find “the one.”

Get out there and enjoy – safe travels!!

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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.

Helicopter Financing in Today’s Market

We attended the  Helicopter Association International (HAI)  HeliExpo in Houston last week, and found a dynamic and healthy level of energy in an aviation niche that hasn’t missed much of a beat since the economic downturn.  From what we saw, the show  was well-attended from the standpoint of both exhibitor and customer participation.  However, in speaking with dozens of manufacturers and sales professionals, there was a common theme – “Helicopter customers are in need of financing options.”

With the credit crunch over the past 18 months, the hardest hit may have been the helicopter market.  While funds were always readily available for fixed -wing purchases, the number of institutions financing helicopter purchases has seemingly dwindled.  Unlike fixed-wing aircraft, helicopters are a newer asset class for most underwriters.  It has just been within roughly the past 5 years that loan programs have been available and mainstream for helicopter financing. When things started  to tighten, the lesser-known or lesser-understood niches were the first to get constricted.

That being said, AirFleet Capital  has the capability, appetite and desire to support financing for the helicopter market.  Though older (pre-1995) and commercial-use helicopters  present a challenge and require unique structuring, there are  exceptional financing options available for late-model, private-use  helicopter  buyers.  Outside of normal financing considerations like liquidity, credit score, and cash flows, a few factors including type of helicopter and utilization will affect the finance terms offered.

Please call us for financing details on your particular purchase.

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:
$180,000
Use:
50% personal, 50% business
Down Payment:
$27,000 (15%)
Finance Amount:
$153,000
Interest Rate:
6.5% fixed
Term / Amortization:
20 yrs / 20 yrs
Monthly Payment:
$1,140.73

Aircraft
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.

Use
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…”