Adam Meredith

  • Tracey Cheek posted an article
    Why Does Usage Matter? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses how the use of your airplane affects your financing.

    How are you going to use your airplane? It's a question AOPA Finance asks its clients early and often. The airplane’s intended mission determines which finance companies will lend to you and the terms of the deal.

    It could be said that there are only two types of airplanes to a lender—a “nice-to-have asset” or a “working asset.” Personal use planes—shuttling company employees or the family for travel—are examples of “nice-to-have assets.” The expectation of the lender is the aircraft will fly a normal number of hours per year. An aircraft put on a Part 135 charter certificate or on leaseback with an FBO, however, will fly significantly more hours per year. They are considered “working assets” because of their high usage. The risk profiles of the two are very different.

    From the lender’s perspective, should the borrower go into default or the business into bankruptcy on the former, the airplane can be parked, turned over and sold without adversely impacting any creditors. The employees and the boss can return to flying commercial airlines. That’s why it’s called a “nice-to-have asset.” It’s not essential to the function of the business.

    The depreciation trajectory for these planes is less steep and more predictable. No lender can predict the absolute future value of an aircraft. But for this type of financing, lenders can predict a worst-case scenario of a reasonable return on the asset should they need to turn the airplane over. That’s an acceptable loan risk for many aircraft financers. An example of that acceptable risk is a 20-year amortization with 15% down on a relatively new plane. This is typical of what AOPA Finance helps its clients get.

    Unfortunately, AOPA Finance has worked with a number of clients who allowed a well-meaning accountant or friend suggest that additional use of the asset might have tax benefits and midway through the deal, they informed us that they’d changed their mind. We recently had a client who did just that.

    Well into the financing process, he decided he wanted to now leaseback the aircraft for rental. The financing had been structured around normal usage. Once the client decided on a high usage scenario, AOPA Finance was left presenting him with a worse loan package for the altered scenario than originally submitted. Had AOPA Finance known sooner about his leaseback intentions, a better option from a different lender could have been negotiated.

    The higher number of hours flown per year increases operational wear, which speeds up diminution of the airplane’s value, which accelerates the loss in equity. If the buyer gets a loan like the one above based on personal/business use but then puts the plane on a charter certificate, the likelihood of them being upside down on the equity of that plane within four years could be significant. When the time comes for them to sell and upgrade they can’t without bringing money to the table. Alternatively, should they go into default, the lender would be stuck, unable to recoup the loan amount.

    It's also harder for a lender to step in and turn over a high usage aircraft put on a charter certificate. That business exists to fly planes. In the case of a bankruptcy, a bankruptcy judge may acknowledge the revenue-generating potential of the airplane as a working asset. The judge could then rule that the airplane must remain in service. The plane would continue to fly, its value would continue to decline, and the lender would be forced to stand by while its asset continues to lose money from the additional use. That’s an unacceptable risk profile for many.

    Knowing which lenders will finance working asset aircraft is part of AOPA Finance’s expertise. Lenders that do these particular deals do so because they have an intimate knowledge of the makes and models of aircraft used for such operations. They know financing high usage aircraft is more akin to financing a business loan for a business. That’s an acceptable risk to them.

    That’s why it’s important to know early in the process how you intend to use your airplane and to stick with that decision. It's far better to know up front if the plane is a nice-to-have or a working asset rather than being inadvertently misled into thinking you can do something which will end up costing you dearly.

    Great rates. Great terms. Helpful and responsive reps. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (75263) or click here to request a quote.

    This article was originally published by AOPA Aviation Finance Company on March 28, 2019.

  • Tracey Cheek posted an article
    Tax Requirements on an Aircraft Purchase see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about tax requirements when purchasing an aircraft.

    Question: I purchased a plane last year utilizing AOPA.  One thing I was not made aware of until later in the process is that required sales tax (I live in TX) could not be included in the loan so I had to give up almost $7k which I was going to use ADS-B compliance.  No one seems to talk about that. Is that normal?

    Answer: The tax requirements on an aircraft purchase can vary drastically from state to state. Since lenders do not roll taxes into the financing, AOPA Aviation Finance does not typically get involved with tax questions. Often times the selling broker will account for sales tax but we always recommend consulting your CPA or a tax attorney. AOPA’s Pilot Protection Services has attorneys on staff and panel attorneys throughout the country that can assist members with such questions. Members of the PPS plan receive a free 30-minute consultation annually along with a number of other benefits.

    Have questions for Adam? He is happy to answer them. Submit your questions here. Great rates. Great terms. Helpful and responsive reps. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (75263) or click here to request a quote.

    This article was originally published by AOPA Aviation Finance Company on March 28, 2019.

  • Tracey Cheek posted an article
    Airplane Acquisition Checklist Series: Part Two: Purchase and Delivery see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, follows up with part two of the Airplane Acquisition Checklist covering Purchase and Delivery.

    In Part 1 of this series on airplane acquisition, we discussed the most efficient way to approach buying an aircraft by using three checklists—Pre-purchase, Purchase and Aircraft Delivery. We also detailed the Pre-purchase Checklist.

    You're now staring at your ideal airplane on your screen. Time to run the Purchase Checklist:

    • Escrow, Letter of Intent and Purchase Agreement
    • Notify Lender
    • Pre-purchase Inspection
    • International Registry (if applicable)
    • Insurance
    • Title Search and Background Checks

    Escrow, Letter of Intent and Purchase Agreement. Escrow appears in all three checklists. Before it was a reminder to get your down payment together. Now it triggers you to move money into an escrow account that you set up through your escrow agent. If you're unfamiliar, AOPA has a strategic partnership with Aerospace Reports and as a member you’ll get discounted pricing and we can help get things set up. Likewise, if you’re working with another escrow company AOPA Finance can help coordinate that too. Plan on a deposit of 5%-10% of the aircraft's asking price.

    The letter of intent puts a clock on the deal, enables you to withdraw from it without penalty under certain conditions you and the seller negotiate, and establishes the parameters for the final price.

    This is also time to have your aviation attorney to draw up a detailed purchase agreement. If you don't have one, AOPA has a sample purchase agreement you can view here. You may want to consider signing up for Pilot Protection Services which includes consultation with an attorney regarding your purchase of an aircraft specific to your state and the legal requirements there. What it covers includes, but is not limited to, purchase amount, refund terms, deadlines for the process, representations and warranties, even the location of aircraft delivery.

    Notify Lender. The sooner you notify the lender, the sooner the lender can convert the pre-approval into an approval. Your lender will conduct background checks, damage history queries, etc. If the aircraft is missing logbooks, that may affect the stipulations of the pre-approval with the lender. Each has a set of tolerances for missing logbooks. Ask before you commit to a particular lender. AOPA Finance may be able to help.

    Pre-purchase Inspection. Even before you go to the airplane, have the logbooks sent to you. Nowadays, most sellers have their airframe and engine logbooks scanned into PDF format for ease of emailing. Get your mechanic started perusing those logs. You and your lender will want to know whether the logbooks are complete as soon as possible. An incomplete set can frequently impact the final price, and it may also affect the plane's insurability.

    In most instances, it's best that a mechanic other than the regular mechanic for that airplane perform the pre-purchase inspection. That may mean flying your assigned A&P to the airplane's location, with a hotel stay.

    International Registry. If your plane is subject to the Cape Town Treaty (see here for more info), you should begin the International Registry process simultaneously with contacting your escrow agent. It's complex and time-consuming and may affect the timing of your closing date. Subject to some exceptions, an aircraft must be registered with an appropriate aviation authority before it can be legally operated in any country. Suffice it to say, better to have your team of experts handle this checklist item.

    Insurance. As far as your lender is concerned, typically, they’ll require you to maintain full ground and flight insurance, as well as "Breach of Warranty Coverage" for the amount of the loan with a carrier acceptable to the lender.

    The lender must be named as "loss payee" and be protected by a "lien holder's endorsement." Once you have been placed with the appropriate lender, we will send you the specific insurance requirements for that lender.

    Title Search and Background Checks. Usually, this will be a straightforward process. If a plane has been in an incident, involved in an estate dispute or part of a bankruptcy, though, then things could get complicated. Your prospective insurer, your lender and your escrow agent may all play a part in these searches and checks. We've heard too many stories of airplane deals falling through at the last minute because of lack of due diligence by the buyer, so be thorough.

    All that complete, what's left is to take delivery. There's one last checklist to run—the Aircraft Delivery Checklist:

    • Punch List
    • Technical Acceptance
    • Escrow
    • Closing and Delivery

    Punch List. Here's where the due diligence of your title, escrow or insurance representatives pays off. They'll work with you to clear up any liens or estate claims. Similarly, the list of deficiencies and discrepancies your mechanic delivered will have been either rectified or negotiated into a lower price.

    Technical Acceptance. Once the Punch List is complete, the buyer then executes and delivers a Technical Acceptance Certificate to the seller. This says the buyer accepts the condition of the aircraft, subject to "no material damage and/or total loss affecting the aircraft upon or prior to arrival of the aircraft at the delivery location." The deposit usually becomes non-refundable at this stage.

    Escrow. The remaining purchase price is deposited into the escrow account, and the seller is paid.

    Closing and Delivery. The title is transferred and the aircraft is registered to the new owner, once the new owner insures it. Finally, the aircraft is turned over or delivered to you. Congratulations.

    Considering aircraft ownership? AOPA Aviation Finance will make your purchase experience as smooth as possible. For information about aircraft financing, please visit the website (www.aopafinance.com) or call 1-800-62-PLANE (75263).

    Click here for The Acquisition Checklist: Part One

    This article was originally published by AOPA Aviation Finance Company on March 5, 2019.

  • Tracey Cheek posted an article
    Aircraft Age Restrictions for Financing see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers the aircraft financing question regarding aircraft age restrictions.  

    Question: Is there an age of airplane or number of airframe engine hours that is off-limits for financing?

    Answer: For piston aircraft, our lenders do not have any age restrictions. Aircraft manufactured prior to 1960 may require a larger down payment and/or shorter term. Airframe time is restricted to less than 10,000 hours. Lenders prefer mid-time engines or less, however, financing an overhaul into the purchase is always an option for those with higher times. If you are looking at a few different airplanes and would like help, our Account Executives are available to help with valuations and can provide rate and term quotes for each airplane. Please give us a call at 800.627.5263 or contact us through our website at aopafinance.com

    Have questions for Adam? He is happy to answer them. Submit your questions here. Great rates. Great terms. Helpful and responsive reps. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (75263) or click here to request a quote.

    This article was originally published on AOPA Aviation Finance Company on February 21, 2019.

  • Tracey Cheek posted an article
    The Airplane Acquisition Checklist Series: Part One: The Pre-Purchase see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, shares his pre-purchase airplane acquisition checklist.

    Did you resolve to upgrade your current aircraft or to buy your first airplane in 2019? Congratulations!. With low inventory and high demand, how you approach the buying process may be the difference between getting your first-choice or settling for an also-ran.

    Buying an airplane is like flying an airplane. It’s all about planning, crew resource management and checklists. Your “crew” includes your lender, your insurer, your maintenance contractor and AOPA’s Aviation Finance Group. AOPA Finance can match you with the right lender, and our extensive experience can also provide you the additional leverage you may need in a tight market, at no cost to you.

    Like flying, how well you plan, manage your crew and follow your checklists help determine how well the purchase process goes. We’re not talking about pre-flight, flight and post-flight checklists, though. We mean these checklists:

    1. Pre-Purchase
    2. Purchase
    3. Aircraft Delivery

    Let’s start with the Pre-purchase Checklist:

    • Ownership—personally or through a company or LLC?
    • Use—personal or commercial?
    • Loan Pre-approval
    • Escrow
    • Private hangar or shared?
    • Aircraft maintenance contractor

    Ownership. Are you going to own the airplane yourself or through your company? Will you create an LLC, a partnership or some other type of corporate body? Iron out those details first. They guide which lender can pre-approve you and may also influence the length of the pre-approval process. There are advantages and disadvantages to all ownership scenarios.  What’s important to know is that if you decide to change structure at the last minute, it’s a bit like telling your building contractor you want to move a door. At a minimum you know there’s going to be delays in the process and it may completely change the structure.

    We’ve seen too many situations where potential buyers got a loan pre-approval based on one ownership scenario (like a partnership), only for them to change the scenario (like dissolving the partnership). That kind of change will negate the pre-approval process and will force the buyer to start over. It may also necessitate finding a different lender.

    Use—Personal or Commercial? Part 91 transport for you alone, for your company’s employees or leaseback to the local flight school? Decide how you intend to fly your aircraft and commit to it. There is no advantage in telling your prospective lender and insurer it’s for personal use, only to conduct commercial operations once purchased. Should the discrepancy come to light because of an accident, incident or investigation, it could trigger a steep default interest rate, or worse. Transparent communication is the best way to keep this complex transaction simple.

    Now it’s time for:

    Loan Pre-Approval. Getting pre-approved confirms what you can afford and enables you to move quickly on an aircraft, both essential in this seller’s market.

    Some think it’s a waste of time to get pre-approved because the pre-approval is time-limited. True, pre-approval is good for anywhere from 60 to 90 days, depending on the lender. That’s generally enough time to find the right aircraft. But, if the search period does exceed the pre-approval timeframe, it may be possible to extend the pre-approval period.

    Even if the lender won’t extend, re-approval is quicker than an initial pre-approval. So you’re still ahead of the competition.

    While waiting on pre-approval, finish the rest of the checklist:

    Escrow. Have cash ready to put in an escrow account. Escrow gives you an exclusive option on an aircraft within a specific timeframe. When entering escrow, ask for generous restrictions. The more time you can negotiate, the better. It gives your lender, insurer or AOPA Finance space to conduct background checks, damage history and title searches. Also consider keeping extra money in reserve to add to escrow should the seller require an additional incentive.

    Next time: The Purchase and Aircraft Delivery checklist.

    This article was originally published by AOPA Aviation Finance Company on February 21, 2019.

  • Tracey Cheek posted an article
    5 Tips to a Speedy Aircraft Approval see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, shares five tips when financing your aircraft.

    1. Be Organized

    Aircraft financing requires documentation similar to mortgage financing. Having easy access to W2’s, tax returns, paystubs, business tax returns and K1’s will help move the process along quickly. The number one reason for delay in approval is missing documents. 

    2. Full disclosure

    Fill out the application with as much detail as possible. You will need to provide documentation in the form of tax returns, bank statements, etc to verify income and down payment.

    3. Understand your credit and financial picture

    Being aware and able to explain any past issues on your credit report will help limit additional underwriting questions. Using free credit tracking services is a good way to understand what might show up on your credit report.

    4. Calculate your ability to afford the loan 

    Make sure you have added the expected monthly payment to your current debt payments. Most lenders are not only going to want to see that you can handle the monthly payment but can also afford the operational and insurance costs on top of your current obligations.

    5. Determine Ownership Structure

    Having an understanding of how you want the aircraft to be registered will help the approval and closing process go smoothly. LLC or corporate ownership adds additional complexities to the closing. Establishing these entities early on in the process helps keep things moving during the final stages.

    Competitive rates and terms. Custom financing options. Helpful and responsive reps. Three good reasons to turn to AOPA Finance when you are buying a turboprop or turbine airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (75263) or click here to request a quote.

    This article was originally published by AOPA Aviation Finance Company on February 5, 2019.

  • Tracey Cheek posted an article
    Adam Meredith, President of AOPA Finance, shares prebuy tips when financing a turboprop. see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares prebuy tips when financing a turboprop.

    We highly recommend getting a pre-buy inspection. It could save you thousands of dollars over time. Here we’ve summarized some important points to consider as you move through the purchasing process.

    1. ALWAYS have a prebuy done. No bank should let you finance a plane without it.
    2. The shop doing the prebuy should specialize in the type of airplane you are buying. We also recommend selecting a shop that has no ties to the airplane.
    3. Give yourself plenty of time to get the prebuy done. Typically, they take 1-2 days, however you might want to add a buffer so you don’t end up getting rushed as a closing date approaches.
    4. Typically, the buyer pays to reposition the airplane and the seller will pay for correcting any maintenance issues relating to airworthiness.
    5. Use the Purchase & Sales agreement to define the sales price plus conditions such as the amount of time to complete the prebuy, who pays for what, and who pays to move the airplane.
    6. Don’t forget to ask for a fresh annual during the prebuy. This is oftentimes required by banks unless one has been completed recently.
    7. If you end up with a reduced purchase amount after the prebuy, that doesn’t mean you can reduce your down payment by that amount. Most lenders require the lesser of loan to value OR loan to purchase amount.

    Competitive rates and terms. Custom financing options. Helpful and responsive reps. Three good reasons to turn to AOPA Finance when you are buying a turboprop or turbine airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (75263) or click here to request a quote.

    This article was originally published by AOPA Aviation Finance Company on February 4, 2019.