Can You Finance An Aircraft With Over 10,000 Hours on the Airframe? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your aircraft finance questions.
Question: I am trying to buy this Piper Arrow IV 1979 with only around 450 total time on engine . But the airframe has 15425 total hours on it and the finance company I was going with called and said they could not finance the plane because it has over ten thousand on the airframe. I am trying to see if AOPA or any other companies will finance with that time on the airframe.
Answer: Thank you for reaching out. We tend to get asked this question a lot by our members. All of our lenders have a 10,000-hour maximum limit on airframes as well. The reason for this is high airframe times reduce the value and make it harder to resell in the event of default. Lenders mitigate their exposure by limiting AFTT.
Question: We have a 1979 Navajo Chieftain, N27888. We have recently upgraded all of the avionics for ADSB compliance and repainted and completed a complete interior replacement. We are going to repower and will need to replace both engines. Do you finance a transaction such as this or just complete airframes?
Answer: Yes we can certainly finance the engine replacements. The entire aircraft will be held as collateral. Lenders will finance up to 80% of the cost of the replacement or the total upgraded value of the aircraft, whichever is less. Please give us a call at 800.627.5263 and one of my team members can get you started with an application.
This article was originally published by AOPA Aviation Finance Company on January 7, 2021.
Four Common Mistakes That Can Delay Your Aircraft Purchase: Ways To Keep Headaches To a Minimum see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares tips for making sure your aircraft purchase goes smoothly.
You found the right airplane for your mission; you have a lender and now you are days away from your final goal—landing the aircraft of your dreams. Out of nowhere, you get a phone call from the lender. A last-minute mix-up now threatens to stall or upend the deal. What happened? Here are four common trip-ups:
1. Last-minute ideas
Did you change your mind midway through the deal regarding how you wish the airplane to be owned, or how the airplane will be used? One of the biggest delays comes from buyers who suddenly decide their airplane should not be personally owned but instead owned by an LLC.
First, you’ve now altered the financial picture from which the lender is basing the parameters of the loan. Second, you’ve just added complexity to the deal. Complexity adds time. Third, an aviation LLC is different than other LLCs. The nuances are significant enough for us to suggest you contact AOPA Legal, or an aviation attorney before initiating the paperwork.
2. Title issues
Did you forget to order a title search from a reputable title company? Missing logbook signatures, an unqualified person making a logbook signoff, the presence of a heretofore unseen lien are all examples of items that can put a “cloud” on a title. Before the title can be cleared, a title company must do due diligence.
3. Pre-buy inspection
What could possibly go wrong with a pre-buy inspection? How about the aircraft is stuck overseas? How about a dispute between the seller and buyer as to where the pre-buy will occur? How about a pandemic that shuts down business operations and air travel for an unspecified amount of time? From the mundane to the previously unimaginable, myriad things can affect the pre-buy. That’s why a Pre-purchase Agreement is vital. In it, all the parameters of a pre-buy are codified and agreed to prior to, hopefully mitigating as many possible obstructive circumstances as possible.
Even with that, the pre-buy inspection will invariably uncover some addressable item. That item’s resolution will then have to be negotiated into the price if it’s not an airworthy item, or fixed and inspected prior to, if it is an airworthy item.
Illegible logbook documentation, missing paperwork, documents missing a notary’s required imprint— are a partial list of paperwork problems that could slow the closing process. AOPA Aviation Finance can help build a paperwork checklist early that will help prevent this pitfall.
This article was originally published by AOPA Aviation Finance Company on November 23, 2020.
Five Things to do Before Buying see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares five quick tips to have a positive airplane buying experience.
On the one hand, the airplane buying experience is thrilling and full of adventure. You’re embarking on an upgrade, or it’s your first-time taking control of your business or personal air travel. On the other hand, the airplane buying experience can be full of adventure and an unintentional thrill ride. You’re embarking upon a transaction process that if left to chance may reveal hidden turbulence. So how to have the best experience? Here are five quick tips:
- Define your mission first. How do you envision using the airplane? Are you going to travel someplace? Are you going to be using to travel someplace with other people? How long are these trips going to be? Where will they be? At what time of year will they be? These will define the type of aircraft that fits your need best. At the very least, this exercise will help you understand what airplanes you don’t want.
- Define your intended aircraft’s support community. Who owns the same aircraft at your local airport? Does that airplane have an associated club or online community? Tap into those human resources to get real world intelligence. Combining what they know from actual flying with your defined mission can help further narrow your choices. For instance, Find out from friends or other owners (e. g. Comanche 400 vs. Cirrus)
- Define the aircraft’s true cost. There is the acquisition price, yes. And you may have clear picture of fuel burn, hangar, database updating, etc. But those aren’t the only cost. What really is the reserve? How easy are parts to obtain? What’s the access like to get a good qualified mechanic who is expert on your make and model? A generalist vs. an expert means down time. What’s your airplane’s down time going to be based on mechanic and parts availability? That analysis may cause you to consider buying a new plane with a warranty on it. Which brings us to #4.
- Define whether a used or a new airplane is your best value. If you own your own business and you can also utilize bonus depreciation to write the purchase off as a business expense, and if your price includes a manufacturer’s warranty for a new plane, that slightly higher cost may mitigate all the issues raised in point #3. This option may also be worthwhile to non-business owners, too.
- Define your financing options. Pre-approval vs. paying cash. What is your opportunity cost vs. financing? How would your return compare between an all cash deal and taking a loan while investing the cash? What’s your comfort level in having cash flow and leverage vs. owning an aircraft outright? Firm knowledge in where you stand on the leverage risk tolerance scale opens or focuses how you’re willing to pay for the airplane.
And last of all, reach out to AOPA Finance. If we don’t know the answers, through the rest of AOPA, we can help point people to other resources and get them those answers.
This article was originally published by AOPA Aviation Finance Company on January 7, 2021.
What Does the Process Look Like? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, walks you through the aircraft purchase process.
Potential first-time aircraft buyers will occasionally ask us what is involved in the process of working with AOPA Aviation Finance when making an aircraft purchase. Because we are a broker, rather than a direct funding source, we have multiple options. Before we consider the best one for an individual’s situation, we do a few things.
The first is to sit down and listen to the member, or their advocate. We want to find out what they’re looking to do with the airplane. Once we understand that, we’ll discuss things like down payment, different potential amortization schedules, length of term and the expected interest rate range.
Next, we assist in compiling a complete package of financial data. The initial conversation usually provides us with a good sense of the member’s financial picture, but things do change. Our general underwriting team will then assess and map out what is submitted to the analyst determining which lender would be the best candidate.
Occasionally the situation changes after we get a credit package put together. The borrower may not feel as confident about the size of the loan and being able to make the monthly payments. Or, the person has spoken to a tax attorney or tax accountant and wants the aircraft owned by a business rather than personally.
If that occurs, we’ll have a follow-up discussion with the borrower. The lender we initially discussed might not be the best suited. We then work to reset expectations, given the updated information.
As a minimum, we try to work only with lenders that are going to provide good customer service. The key question we ask is: “Does the loan package still fit the borrower? We re-adjust along the way until we decide what the best option is. We then submit to the lending institution.
Not every person’s situation is an easy fit for the lender. Two examples spring to mind. In the first, a person may own a business or have multiple entities that are flowing through to the Schedule E on a federal tax return. That may create a complicated financial picture. It’s not uncommon that those are the kinds of transactions that can sometimes take longer to get done because there’s more analysis that must occur on all of the various entities.
In the second, let’s say the age of the collateral is a little bit over; or let’s say instead of 20% down, the borrower only wanted to put down 15%. Sometimes we can convince a lender to make exceptions to their established policies based on other attributes.
That said, it’s important to remember we don’t make the lending decision. While we generally have a good idea of what will or won’t work, ultimately, lenders are regulated by legal requirements they must adhere to. The beauty is that because we’re in frequent discussions with these lenders, we generally have a good idea of any imminent changes and you DON’T get a “one-size fits all” approach.
This article was originally published by AOPA Aviation Finance Company on November 23, 2020.
What Happens Once I'm Approved? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares two important final steps when securing an aircraft loan.
What happens once I’m approved for an aircraft loan? There are still two steps remaining to secure a loan. Approval means the bank has approved both you and the airplane. Now the question is, are you ready? The second step, post-approval, is getting the bank everything needed to fund.
Once a lender is comfortable with the aircraft, the borrower, the ownership structure of the borrowing entity, and the global financial picture of the entities in which the owner or owners have a controlling interest, they’ll signal they are OK to scheduling closing. How do they get there though?
You now do your part by providing the remaining paperwork—any missing financial documents necessary, copies of the ownership documents (the EIN document, the articles of organization, and the operating agreement), if applicable. Note if you intend to have a holding company own the aircraft, the time to form the company correctly and completely is earlier on because the lender will need to verify the legal structure and documents before it can approve the loan and issue loan documents.
It’s been our experience that people frequently take the organizational structure of an aircraft holding company too lightly when they shouldn’t. Lenders take it very seriously. There’s a legal difference between how a member-managed LLC signature block is executed versus a manager-managed LLC. So get, and heed, good advice and do so before getting approval (otherwise let the lender know it’s in the works and discuss the specifics).
Next, a title and escrow company will review the aircraft’s ownership and title history and share that with the lender. The lender will review the aircraft’s logbooks for completeness, the purchase and sale agreement, as well as the pre-purchase inspection or signed off documentation from an A&P to confirm that the airplane is in airworthy condition. The title and escrow company handling your transaction may even assist with the last document required prior to closing, the certificate of insurance (COI).
The escrow and title company will also handle the coordination of payments to the lender, you, and any third-party vendors attached to the aircraft at the time the lender releases the funds. Finally, the lender will authorize the release of funds once any requested supplemental documents have been received and vetted.
This article was originally published by AOPA Finance on October 23, 2020.
Finding the Best Appraisals for Your Aircraft see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, talks about which appraisal is right for your situation.
Getting an appraisal is a necessary part of the aircraft acquisition process. Because there is more than one type, the question becomes, “Which appraisal is right for your situation? Knowing that may involve a conversation with your lender and should also involve a conversation with AOPA Aviation Finance. Here is an analysis of the three types.
Pricing Digest Appraisal
This is the least expensive, least comprehensive type of the three. A Vref or Bluebook analysis is good for 90 percent of aircraft transactions. That's the good news. The bad news is the analysis is only as accurate as the information put into it and therefore subject to biases (lender perspective, seller perspective, buyer perspective). Also, what isn't part of a book appraisal are the nuanced differences actual market values (based on current demand) versus costs for things like STC modifications, avionics and engine monitoring upgrades, not to mention interpretation of paint and interior quality.
A desktop appraisal is done by a certified appraiser. Certified appraisers may start with the pricing digests, but they then expand their analysis to include market data. That means looking at comparable sales, type-specific trends, as well as average "days on market" for similar aircraft. More sophisticated, more powerful aircraft garner additional appraisal criteria. For example, if the aircraft is a Malibu recently re-engineered into a JetPROP, well that means the aircraft's maintenance schedule must be evaluated differently.
This is also true for turboprops and light jets. The appraiser will have to sift through even more paperwork than normal. Does the aircraft have maintenance expenses coming up? Is it enrolled in an engine maintenance program? Is it up to date with those programs? How much life is left in those programs? A desktop appraisal typically runs $500 to $600.
This is the most extensive, most hands-on, most precise way to appraise an aircraft. Not surprisingly, it's also the most extensive at a price range of $2,000 to $4,000. In a lot of ways, it's like a pre-buy inspection.
The physical appraisal combines all aspects of the desktop and pricing guide appraisal with an actual on-site inspection of the aircraft. This is an ideal inspection for unique, "orphan" or highly-modified aircraft. In the case of those airplanes, comparing them to the more standard, more generic market may prove insufficient. Despite the cost, it's also an ideal way to create a bulletproof assessment of one's aircraft's true value.
This article was originally published by AOPA Aviation Finance Company on October 23, 2020.
You Don't Need All This Financial Information, Do You? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, lists the financial documents you need when purchasing an aircraft.
"You don't really need all of this financial information, do you?" It’s a question often asked by AOPA Finance clients. Yes, yes we do. If you want the lowest rate, the most competitive structuring, the least amount down, and the lowest payment, an exhaustive analysis of your credit worthiness must be made.
IRS Schedule Cs or Schedule Es are not enough. While they may indicate whether the ownership structure has any pass-through income on an individual's tax return, the description of that pass-through income is summarized as a line item or two. Likewise, K-1s only indicate percentages of a shareholder’s income and liabilities. Line items and percentages don’t tell the whole story. Full tax returns do.
Global Cash Flow
Your tax summaries may show cash going from one related entity to another. But are you actually taking from the “left pocket and putting it in the right pocket?” If so, that isn't real money, is it? The lender will net that out of your “global cash flow.” Global cash flow—also known as a Consolidated Statement of Cash Flows—is a listing of all the various entities in which a person has ownership and what their net cash flow from all the entities is.
And then there’s the global debt schedule.
Global Debt Schedule
What is a global debt schedule? It’s a comprehensive list of all the ownership entities. It’s a listing of the actual total debts of each entity in which the individual has ownership. It details what the total amount owed is, and to whom. What the monthly payments are. How much is interest versus how much is principal. It also includes maturity dates for all debt.
Depending upon what one’s business relationship is with his partners, the lender may require additional documents to help fill in holes in the financial picture. Those might include hypothecation, subordination, or even side agreements. A hypothecation agreement could be submitted from the controlling party acknowledging the CEO emeritus is entering into a financial relationship.
Speaking of partners, imagine a borrower has two partners and he owns one-third of the business. Some lenders may require the other two partners’ to be party to the transaction.
For some, that’s just too much. They’re only going to have the loan for three years so the “pain-in-the-neck” factor is not worth their time and effort. Other folks just don't want to disclose all their financial information for personal reasons. Still others have obligations with lenders elsewhere that restrict them from guaranteeing debt or have covenants in place from other business debt. For these individuals, a collateral-based loan might be the more appropriate option. The trade-off is simplicity for a little bit higher interest rate.
Collateral Based Loans
A collateral-based deal might proceed more quickly from initial inquiry to funding but it does come with a different paperwork burden. Even so, the process is usually far less onerous. Banks will conduct an exhaustive search on the quality of the individual as well as on the aircraft. For the individual, they want to know if this person has filed bankruptcy. Do they have tax liens against them? Are there pending lawsuits on them, for any reason? A person applying for a collateral-based loan should be crystal clear how good or bad their character looks on paper.
Every time an AOPA Finance advisor must request additional information because our client’s paperwork is incomplete adds additional stress to the process. Bottom line-- there are no shortcuts. A transparent, painless credit deal requires in-depth financial paperwork.
This article was originally published by AOPA Aviation Finance Company on September 29, 2020.
Why Does A Cash-Paying Partner Need To Be On An Aircraft Loan? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about cash-paying partners on aircraft loans.
Many lenders require that all partners are on the lien, even if one of those partners is paying cash. In particular it’s fairly common with lower-dollar loan amounts. And frankly, it’s a tradition that should be changed.
Lenders need a formal agreement with all parties involved in the ownership of the asset—the aircraft—stating that the lender has a first-priority interest in the aircraft in the event the loan goes into default.
Generally speaking, there are two methods to achieve that aim. The most efficient way is to have all parties to the transaction attach themselves to the loan, the lien. The second way is by drawing up an addendum document, commonly known as a subordination agreement. The subordination agreement doesn’t tie the cash-paying participant to any of the debts or other obligations assigned in the loan. It’s a stipulation of first position rights by the lender and an acknowledgment by the cash party of that stipulation.
One of these options is more customer friendly than the other. One is more traditional than the other. Our belief is in an age when loans have become as commoditized as they have become, lenders should emphasize customer service over tradition.
Lenders might argue that the extra fees generated from creating a subordination agreement is not customer friendly. For instance, for loans between $20K and $50K, that extra cost could approach 4 %. In many a lender’s mind, that additional financial burden on the borrower is more nuisance than convenience.
In more upmarket transactions, a PC-12, a TBM or a Cirrus, for example, where the loan amount is well north of half a million, lenders tend to be more willing to accommodate. That’s because the added cost as a percentage of the total loan is much smaller and therefore only minimally impacts them.
We live in a world where people are more willing to pay for convenience. It would behoove banks to offer the option of drawing up subordination agreements for lower value loans if the borrowers believe that to be in their best interest. Doing so relieves the cash partner of loan default liability and credit exposure. And the bank can rightly charge for the convenience.
This article was originally published by AOPA Finance on July 30, 2020.
Difficulties Financing an Aircraft for Leaseback see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the challenges of financing aircraft leased back to a flight school or flying club due to higher-than-normal aircraft usage.
The usage equates to two things: number of hours flown annually and the type of hours flown. Aircraft leased back to flying clubs will typically accrue fewer hours than those leased to a flight school. Additionally, flight training hours will be harder on an aircraft’s engine and airframe because students and inexperienced pilots are harder on equipment than experienced pilots.
The flying club may go so far as to stipulate that members can’t join without a certain level of experience. A privately-owned airplane is flying a lot at 100 hours per year. An airplane on leaseback to a flying club could fly 200-300 hours per year. A popular flight school might see double that. More hours on the engine mean more hours on the airframe, lowering the airplane’s value. When it comes to the engine, that accelerated use could force an overhaul before typically anticipated in an amortization schedule, significantly eroding an airplane’s market value. This is what makes lenders nervous.
For example, let’s take a 1980 Cessna 182 worth $100K with a mid-time engine and decent avionics and interior. The prospective buyer wants to lease back to a flying club. Let’s say the lender values the same aircraft at TBO at $85K but also expects you to reach TBO in a certain number of years under normal usage. For a leaseback to a flying club, the lender might typically expect to see 150-250 hours a year. A lender can tolerate 300 hours or maybe even 350 hours, but higher than that and depreciation accelerates. Additionally, instead of an overhaul in five to seven years, you’ll need one in two or three.
For these reasons, lenders have a minimum loan of $100K and require a 30% down payment to finance a plane destined for flight school or flying club leaseback. So $30K down and then a $30K overhaul in two-three years means an owner essentially has put $60K cash into a plane that’s worth $105K with the overhauled engine.
Some aircraft are more likely leaseback candidates than others. A $400K or $500K SR22 is a good example. This could be ideal for a flying club or for a flight school that also rents aircraft. It’s also worth noting there are some options for leaseback to flying clubs with only 25% down and a $25K minimum loan amount, but the aircraft must be owned personally, not in an LLC. Give AOPA Aviation Finance a call if this is a situation you’d like to explore. Depending upon the current residual value in your aircraft, there might be room for a deal.
This article was originally published by AOPA Finance on July 9, 2020.
Do Most Lenders Offer 100% Financing? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers aircraft financing questions.
Question: I’m working with a broker who indicates he has lenders who will do 100% financing as long as the purchase price leaves at least 15% equity in the purchase. From looking at some of his planes he is selling with 0 down, it looks like he isn’t fibbing. Rates are fixed and vary from 4.2-4.9% (presumably based on credit score) and they are 20-year term loans with no penalties.
Is this something that can be done by most lenders or is this specific to whatever lenders he may be working with?
Answer: The short answer is no, most lenders won’t finance more than 85% of the purchase price.
Here’s the logic behind that decision. If you were to negotiate the purchase price down from $100k to $85k it really wasn’t worth $100k. That’s not to say you couldn’t turn around and potentially find a buyer for $100k, you might, especially if you were willing to spend money for marketing and were willing to wait it out for the right buyer to come along. The banks, however, know that if they had to sell the asset, they’re going to look to get out of it as expeditiously as possible and turn it into cash so they can then turn around and lend it back out. That’s why they typically require 15% down on the lesser of the purchase amount or the aircraft value amount.
More than likely in the scenario you’re discussing (where you have only slightly higher than market rates and 0% down), the broker has an agreement with their lender(s) whereby they will cover any shortfall resulting from a buyer default. This is typically done by an agreement to buy the airplane back at an agreed upon amount.
The potential bigger problem though with regard to 0% down financing is if there’s a macro event that causes the market to drop 10-20%, when you go to sell the airplane you’re likely going to be upside down in value. Which means you’ll either have to come out of pocket to sell or else keep the airplane until the situation gets better.
My advice would be to put at least 15% down to give yourself a hedge regardless of what you negotiate in purchase amount.
NAFA member, Adam Meredith, discusses the hidden or unexpected costs of aircraft ownership. see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the hidden or unexpected costs of aircraft ownership.
Major hidden costs, for example, can result when a previous owner has deferred maintenance. You’re better off buying an airplane that’s been regularly used because the owner will typically address issues as they arise in order to continue using the plane regularly.
It’s a myth that it’s smart to look for an aircraft that’s had low flying time. Less wear and tear on the engine and the airframe? While those are important considerations, they should not be the only ones. After all, these are machines and machines are made to be run. When an aircraft sits, its problems remain hidden.
Low flying time could mean high maintenance when it’s your time to own the airplane. That’s one reason the first annual inspection can be unusually expensive — another hidden cost. So be prepared.
Here is a list of other hidden costs associated with aircraft ownership:
- Expenses incurred when an airplane is tied down outside (as opposed to protected in a hangar), including repainting and reskinning the exterior and replacing or repairing instrument panels, aircraft seats, interiors or even sun-crazed windows.
- Contaminated fuel, or more likely, a lineman who accidentally fills your gas tanks with the wrong fuel.
- Unforeseen mechanical failures or mishaps, such as a blown tire, a gear door jamming, a baggage door opening in flight and ejecting an object that damages an elevator or tail surface, etc.
- Compliance with unforeseen airworthiness directives (ADs).
- Animal strikes, bird strikes, lightning strikes, prop strikes, strikes by another aircraft taxiing into you.
- Mud daubers corrupting your pitot-static system or rodents chewing through electrical cables or nesting in your push-pull tubes.
- Sudden failure of one or more instruments, navigation radios or engine monitors.
- Even a pandemic.
The list is extensive but not exhaustive. Hence our advice to add 10% to 15% on top of your projected operations budget, so when those hidden costs reveal themselves, you aren’t surprised.
This article was originally published by AOPA Aviation Finance Company on June 10, 2020.
NAFA member, Adam Meredith, President of AOPA Finance, answers your aircraft purchase questions. see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your aircraft purchasing questions.
Question: I am a healthy 60 year old, retired student pilot with aspirations to purchase a used Cessna 182 for recreational travel after successfully passing my private pilot check ride. My intention at this point is to pay cash /not finance, but that decision is not based on considerations other than a personal aversion to debt. My expected budget for the purchase is $100-$175K, including any ancillary expenses associated with the purchase (inspections, taxes, fees, etc.) I am ignorant of the various considerations involved in choosing / buying an airplane and am curious about any services AOPA may offer to assist new pilots in purchasing their first airplane.
Are there benefits to financing? Is there a “playbook” on buying an airplane that AOPA provides for its members? Is there a financial advantage to waiting, i.e., is the current market in used GA aircraft likely to soften into a “buyers market?” Is it typically more cost effective to acquire a low tech platform and update avionics or look for a plane with glass panel already installed? Other considerations not mentioned?
Answer: The biggest benefit to financing is for folks with cash flow that want to preserve liquidity. Right now, especially, we are seeing people preserve capital either for investing in the market or for a safety margin if things start to get tight, cash flow-wise, down the road. In terms of a “play book”, we have a great resource page on our website for members trying to navigate the purchasing and financing process: https://finance.aopa.org/aviation-finance/first-time-buyers
At this point, it seems unlikely for the used GA aircraft market to soften. Inventory levels of good 182s was limited prior to the COVID-19 outbreak. What we’ve seen since the COVID-19 outbreak is very few new listings of aircraft for sale, making it just as hard to find deals. Could it change down the road? Possibly, but at the rate things are going it won’t likely be for a while longer. In terms of acquiring a low tech platform and updating the avionics vs. looking for an airplane with glass panel already installed, you are almost always better off (economically) buying an airplane someone else has done upgrades on. They put the money in but won’t get it back out. We always recommend that members get pre-approved so that when you find the airplane you like you’re not going to lose out to a cash buyer. Please reach out to us by calling 800.627.5263 so we can answer any other questions you may have.
This article was originally published by AOPA Finance on May 29, 2020.
With Rates Still Falling, Am I Better Off With a Floating Rate? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses adjustable rates and your aircraft purchase.
The classic answer is, "It depends." The answer lies in what your time horizon is for holding onto the aircraft you are buying.
Most lenders offering adjustable rates will have an interest rate floor. And for most of them, that floor is only slight lower than where rates are currently. Remember, lenders have floors because they incur real costs in lending money and also seen rates go negative. Interest rate floors allow them to cover their costs and remain solvent. Therefore, while anyone with an adjustable rate could benefit if rates drop slightly and/or stay flat, borrowers with longer-term hold time horizon risk paying more when interest rates start eventually going back up.
That said, the latest economic projections indicate the current economic situation we find ourselves in is likely to last between 18 months and two years. Given that the average hold time is somewhere around four years, that means there are a number of people who are holding their aircraft for only a couple of years or less. So, if your time horizon to own an aircraft is less than a couple of years, then yes, absolutely, this is a great time to look at floating rates.
If your hold time is greater than two to three years, you risk becoming exposed to interest rates floating higher when the economy starts picking up steam. It's not unlikely that the Fed may increase rates in order to stave off inflation. That'll increase the cost of your loan.
This article was originally published by AOPA Finance on April 30, 2020.
Adam Meredith, of AOPA Finance, addresses commonly asked questions on aircraft ownership. see more
NAFA member, Adam Meredith, President of AOPA Finance, addresses commonly asked questions on aircraft ownership during this difficult time. Purchasing an aircraft can be a challenging process under normal circumstances, but can be even more difficult to navigate during market volatility.
Question: With the current market volatility, do you find that lenders are tightening or loosening their credit requirements?
Answer: We have definitely seen some that are tightening credit. Specifically, some lenders are requesting copies of bank/investment statements that are within the last couple of days (vs. 30 days, under regular times). Given stock market volatility this isn’t too surprising. Also, we’ve seen some lenders that are being more cautious lending to individuals with direct financial exposure to COVID-19 (i.e. service industry companies not deemed essential).
Question: What advice are you giving to members who were currently looking to purchase before all of the shelter in place orders? Should we continue our search or place our search on hold until all of this blows over?
If you’re personally at high risk (financially or otherwise) to COVID-19, you’d be well advised to pause the purchase process. However, for everyone else, I’d encourage you to keep looking and work with sellers to create a plan for how to push through the closing process. For advice on guidance with shelter in place requirements, reach out to our trusted legal staff if you’re a legal services plan participant. If not, reach out to our Pilot Information Center to get the latest guidance.
This article was originally published by AOPA Finance on April 23, 2020.
How is the Coronavirus Affecting Used Aircraft Prices? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses how the coronavirus pandemic has affected pricing of used aircraft.
As of this writing, the coronavirus pandemic has not resulted in any measurable decline in used aircraft prices. That's not to say it won't over time, but in the near term, prices are holding steady.
Why aren’t we seeing values lower? Despite being blindsided by the consequences surrounding the coronavirus pandemic, the aviation market was already in a unique situation because inventory was pretty thin. Traditionally, when supply is constrained, market pricing will stay roughly the same. That holds true now, despite any drop-in demand that we may be witnessing.
Another reason prices have remained steady is because fewer owners are listing planes right now. There is so much uncertainty surrounding the ability to close deals (financing, the logistics of inspections and aircraft delivery) that folks are more comfortable sitting on the sidelines than taking the risk of losing out on a deal.
While the coronavirus pandemic might spur some people to sell, as of yet, there’s been no noticeable uptick in these situations. AOPA Aviation Finance, (“AAF”) is working on a deal right now with a pilot-owner who’s trying to close on a TBM turboprop single. He's buying from an 80-year-old gentleman, but such transactions are rarer than they are regular.
The bottom line is if you're thinking this might be a good time to pick up something cheap, our answer is, it’s always worth looking, but the markets are efficient and the professionals in the industry help to keep it way, so you’ll have to look hard for those gems.
This article was originally published by AOPA Finance on April 30, 2020.