NAFA member, Martin Ormon, founder of Aircraft Finance Corporation, has been financing new and pre-owned aircraft for over twenty years in a niche business that has proven to be successful.
It all started with a deal back in the spring of 1998, during Ormon’s private banking days, when he was the co-owner of a hedge fund in the Northeast. Martin was tasked with assist- ing a client of his – an automobile dealer based Southern California – with a short term bridge loan to make an immediate acquisition of a partially constructed auto dealership. The client had a commitment from a local bank in the area, however due to the timing and urgency of the deal, Ormon stepped in and facilitated the loan. In exchange, the collateral for the deal was a 1996 Hawker 800xp. Within eighteen months, the deal went sour and Ormon ended up with the 1996 Hawker 800xp in his hedge fund portfolio. Ormon, being the ‘smartest guy in the room’ was challenged by his partners, “Okay, smart guy, what are we going to do now?” Ormon replied, “Well, Gentleman, it looks like we’re going into the aviation financing business.” Ormon immediately leased the aircraft to a pharmaceutical company for three years. “That’s when I discovered an attractive quality of ‘mature’ aircraft,” he explains, “even after they have been fully depreciated, their residual value can be impressive. Maintenance programs are a key factor in our credit decisions, how- ever not every aircraft we finance requires one, we do our own appraisals and verify the aircraft maintenance history, Where traditional banks shy away from aircraft aged fifteen years and older, AFC finances aircraft up to 30 years old, with loans from $500,000 to $20,000,000 Dollars.
So, how do they do it? In most cases, Aircraft Finance Corporation partners with regional banks that are federally chartered and then guarantees the loans through a percentage of term of the loan. Ormon explains, “[Our work is] really not that difficult to do. We have skin in the game and that makes a very big difference with regard to rate and term.” It is important to note, that in addition to their experience in the aircraft financing world, their work does require extensive knowledge of their customer. More than 85% of Aircraft Finance Corporation’s loans are made in house, as they under- write, service and portfolio their own loans. Furthermore, the customer’s loans do not get sold to the secondary market. On average, Aircraft Finance Corporation’s customers will keep their aircraft for 42 months. With this type of client loyalty, Aircraft Finance Corporation prides itself on 90+% customer retention. In fact, in 2017 Ormon and his employees closed 56 transactions with an average loan size of 3.2 million dollars.
“We base our amortization on 20 years. It’s our benchmark and it works. It adds to the bottom line of our customers cash flow. Aircraft Finance Corporation offers a vast range of loan programs from 3 years all the way up to 10 years, based all on 20 year amortization and up to 85% of the aircraft valuation. With regard to aviation finance brokers who very seldom have any skin in the game, this quickly becomes very frustrating to them when trying to compete with Aircraft Finance Corporation.”
After the financial crisis in 2008, the ‘big banks’ altered the way in which loans were made on aircraft transactions. With significantly shorter terms and stricter age requirements, they were no longer offering clients, what Aircraft Finance Corporation considers, really great deals. Loans on aircraft aged more than ten years requires a significantly higher down payment, comes with shorter terms and commands higher interest rates. The bar raises even higher for aircraft aged more than twenty years. Overall, resources to finance aircraft that was anything other than factory-new was scarce. Ormon recalls, “Everybody was leaving the market, with thousands of aircraft out there and available. I saw it as a great time to aggressively take market share.”
Ormon ramped up Aircraft Finance Corporation, taking an approach near completely opposite to the conventional banks. “So many aviation lenders dislike an older aircraft on their balance sheet,” Ormon reflects. “In fact, many of the big banks today frequently call Aircraft Finance Corporation to take older aircraft out of their portfolio, which we gladly do.” When it comes to new aircraft, Aircraft Finance Corporation consistently beats the ‘big banks’ who generally want to offer LIBOR-based rate programs. LIBOR-based rate programs can often leave the customer to become stuck with an escalating monthly payment shortly there after the aircraft loan is closed. Ormon believes, “Generally speaking, the ‘big banks’ do not want you to have any options; what you see is what you get.” “Earlier this year, we refi- nanced a Challenger 605 for a Texas business owner. The client had previously financed the aircraft with one of the ‘big banks’ with a monthly payment of $70,169 on a seven year term. With our 20-year term, his payment became $29,515 per month, allowing his business to utilize their new found cash flow. This is why a great percentage of our transactions are with repeat clients. Our clients range from Fortune 500 companies, to golf professionals, to manufacturing companies, etc...”
This article was originally published in BusinessAir, 2018 Vol. 28, No.10. Photo credit: Jay Davis.