aircraft finance

  • Tracey Cheek posted an article
    A Decade of Aircraft Finance Evolution see more

    NAFA member, Ford von Weise, Global Head of Aircraft Finance at CIti Private Bank, shares why now is a good time to buy your business aircraft.

    A decade ago, the question of whether or not you could finance your business aircraft acquisition had a complicated answer. With the economic crash of ’08, the bubble burst and the lending industry became harsh, especially for what were deemed illiquid investments, including business assets such as aircraft. Unless you met the significantly increased financial requirements, encompassing net worth and capital liquidity, as well as having “investment grade” credit and a well-established relationship with the bank, then financing an aircraft likely wasn’t an option for you.

    Many banks raised interest rates across the board or got out of aircraft lending completely. This move was due to much tighter regulations that more than doubled the capital reserves requirement (new Basel III loan reserves), along with the quickly declining market value of both new and used aircraft. With these developments, coupled with heightened loan covenants (restrictions on borrower activities that could jeopardize their ability to repay), lending decreased and fewer transactions resulted. If you still pursued that aircraft investment, you either paid with cash, or waited for the aircraft market to shift again.

    That shift began taking place with the recovering economy. The demand for light and mid-size aircraft increased. New (non-bank) lenders began filling the space in the middle of the aircraft market, capital started flowing back into aircraft finance, and loans on aircraft once again became an appealing investment. The diversity in lenders brought diversity in financing options, and opened up the aircraft market to older models (although mandatory avionics technology upgrades – cost-prohibitive for some – now had to be considered).

    More customized financing, in the form of capital leases, operating leases, or traditional loans with varied terms, became available. The big banks leaned toward financing new or “like new” aircraft with secured loans, while non-bank lenders trended toward more varied aircraft and types of loans. Credit quality, along with the aircraft’s residual value, still were big factors for both. However, credit requirements lessened and residual values rose, preparing the aircraft lending market to take off. It wasn’t an awful time to buy a business aircraft anymore, but it also wasn’t the best, yet. 

    The big variable in financing terms had to do with the unpredictability of aircraft residual values. While it became easier to know what an aircraft was worth (compared to the years following the recession), residual values still were inconsistent. This situation was largely informed by the increasingly faster technology cycles in avionics, combined with new manufacturers’ discounting. Because banks look at an aircraft as an asset and need to secure collateral for its underlying worth, the make, model, and technology with which it is equipped (among other factors) influenced residual value and financing terms accordingly. 

    Demand for business aircraft continued to grow, along with financing capital in the aircraft finance market. Combined with more varied loan options and increasingly favorable terms, competition in the space soared. Banks revised their risk acceptance criteria in order to buy more volume, reducing financial requirements even more. Now, with lower interest rates, lower market values for business aircraft, mostly stable residual values, and an increasing number of buyers, “covenant light” transactions are increasing. 

    The developments in the aircraft finance market during the last decade may be complicated. Yet the question of whether or not to buy a business aircraft no longer is complicated: there’s no better time to buy! While we’re not back to the crazy deals of non-recourse lending seen prior to ’08, there’s little reason to wait to make an investment in business aircraft. However, borrow with caution. If you’re on the verge of acquiring a business aircraft, be sure to seek a lender with aviation specialization.

    This article was written by Ford von Weise and originally appeared in Business Aviation Advisor May/June 2019.

  • Tracey Cheek posted an article
    NAFA Announces New Officers and Board Members at its 46th Annual Meeting see more

    Dear Fellow NAFA Members,

    At the close of the 48th Annual NAFA Conference it became my distinct honor to take the helm of such a distinguished organization as we head toward our 50th anniversary.

    The 2019 Conference was an excellent event in many respects, with presentations from industry experts, aircraft manufacturers, our keynote and economist, and lively discussions on the issues that are most topical to the NAFA membership. We are especially appreciative of our conference sponsors who have given NAFA the ability to invest in increasing the quality and content of the event year over year. Your feedback from the event is critical in our development of future years’ Conference programs. Please take the time to complete the post-conference survey if you have not already done so via the link: https://www.getfeedback.com/r/cuVU44p8.

    At the Annual Meeting NAFA announced a new Code of Ethics for our membership, and the final version is attached here. We would welcome you to review and comment on the document by April 30th, as our intent is to implement this soon thereafter.

    Organizationally, NAFA welcomes the addition of Ed Medici to the Board of Directors. Ed is a 20+ year veteran of the aviation industry and serves as the Managing Director at Banc of America. In addition, Jim Simpson, Senior Managing Director with First Republic Bank joins the NAFA Executive team as NAFA’s new Vice President. We are also thankful for the renewed support of our officers; Karen Griggs - Executive Director, Tobias Kleitman - Treasurer, Tony Kioussis - Secretary, and David Warner, NAFA’s General Counsel.

    We received excellent feedback during the Conference on what you want to see from your NAFA membership. With this in mind, we have a lot to accomplish, and we are looking for active participants for our Committees. Please consider participating in one of the below committees:

    • -  Website Development

    • -  Annual Conference Planning

    • -  Other Networking Event Planning

    • -  Membership Committee

    • -  Regulatory & Advocacy

    • -  Marketing Committee

    • -  Strategic Planning

    • -  Sponsorships & Fundraising

    If you have an interest in joining one of the above initiatives, please feel free to reach out to Karen Griggs or I (karengriggs@nafa.aero).

    In moving our focus forward, we ended our event in Fort Lauderdale with an announcement as to next year’s conference dates and locations. NAFA’s 2020 conference will be hosted by the Meritage Resort in Napa Valley, California and is scheduled for April 28-May 1.  We hope you will make plans to join us!

    Sincerely,

    Jim Blessing

    President, National Aircraft Finance Association 

    jblessing@airfleetcapital.com

    480.634.8129 direct

    703.608.9360 cell

  • 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.

  • Tracey Cheek posted an article
    Futile Search: Are You Ready to Buy But Can't Find Your Airplane? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the futile search you may face when buying an airplane.

    You are pre-approved for a loan, have a hangar secured, and now all you need is the turboprop of your dreams. You know exactly what you want. The only problem is there don’t seem to be any on the market, or at least at what you think is a reasonable price.

    This is where a broker or dealer that specializes in the particular make and model your looking to purchase can be of tremendous value. Let’s say for sake of discussion you’re looking for a TBM 850. A good place to start is your local new TBM dealer. While they may not currently have an 850 available for sale, chances are they’ve sold one and may know someone looking to purchase a new TBM if they could only sell their used one. In the real estate world, agents frequently have so-called “pocket” listings where they have talked with owners who are interested in selling someday and the aircraft world is no different. Their property may not be listed on the market. If you choose an aircraft that is in high demand, it is not unusual for a broker to know about an aircraft that is not for sale…yet.

    Should that approach fail, take a look at your search. What is it about your dream plane that is limiting your results? Do you need to shop for similar aircraft that nearly match, but not exactly match, your ideal model?

    Here’s the good news. In general, there is enough of an aircraft inventory out there that, unless you are looking for something really unique, you should be able to find what you want. If not, there is still a final plan. Find someone who has what you want but has no intention to sell, and make a generous offer, you may be surprised.

    Doing so may necessitate an appraisal to justify the value of the aircraft, however, even if the appraisal comes in less than what you’re paying, most lenders are still more than willing to provide a loan. Virtually all lenders lend on the lesser of a loan to value or loan to purchase amount. You may just need to put a little more down than you were originally planning.

    When the buying fever strikes, AOPA Aviation Finance is here to help you find the lender that is right for your specific purchase.

    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). 

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

  • Tracey Cheek posted an article
    Lending Associates joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE

    FORT LAUDERDALE, Fla. – September 1, 2018 - National Aircraft Finance Association (NAFA) is pleased to announce that Lending Associates has recently joined its professional network of aviation lenders. “NAFA members proudly finance - support or enable the financing of - general and business aviation aircraft throughout the world, and we’re happy to add Lending Associates to our association,” said Ford von Weise, President of NAFA.

    Lending Associates is a provider of financing solutions for recreational and commercial aircraft acquisitions, working with a large network of quality lenders to ensure the most competitive loan rates. With years of experience, their team of experts are available to answer client questions throughout the process, helping consumers and industry professionals alike navigate today’s complex financing process. 

    Lending Associates matches the best lender to their clients’ specific financing needs, maintaining the utmost privacy and confidentiality. Their loan specialists work to design a financing program to best meet each unique situation. From the initial consultation to loan closing and ongoing servicing of the loan, the company is committed to the needs and goals of the client.

    "Lending Associates is proud to join NAFA in its efforts to support private aviation. From what I have seen, the members of this association have a passion for aviation and a history of moving the industry forward from all aspects, not just finance," stated Grant Smalling, President of Lending Associates. 

    Much like NAFA, Lending Associates is dedicated to fostering quality, professional service throughout the aviation finance industry. Lending Associates and NAFA promote excellence in aircraft finance through their commitment to the consumer’s goals. 

    For more information about Lending Associates, visit https://www.lending-associates.com/.

    About NAFA:  

    The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit www.NAFA.aero.

     

  • Tracey Cheek posted an article
    Chemical Bank Commercial Finance joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE

    FORT LAUDERDALE, Fla. - October 23, 2018National Aircraft Finance Association (NAFA) is pleased to announce that Chemical Bank Commercial Finance has recently joined its professional network of aviation lenders. “NAFA members proudly finance - support or enable the financing of - general and business aviation aircraft throughout the world, and we’re happy to add Chemical Bank to our association,” said Ford von Weise, President of NAFA.

    Chemical Financial Corporation offers a full range of traditional banking and fiduciary products and services, and is the largest banking company headquartered and operating branch offices in Michigan. The corporation operates through its subsidiary bank, Chemical Bank, with 212 banking offices located primarily in Michigan, northeast Ohio and northern Indiana. At June 30, 2018, the corporation had total assets of $20.28 billion. Chemical Financial Corporation’s common stock trades on the NASDAQ Stock Market under the symbol CHFC and is one of the issuers comprising the NASDAQ Global Select Market and the S&P MidCap 400 Index. They are also an FDIC member and equal housing lender.

    Since 1917, Chemical’s approach to banking has been focused on community banking, highlighted by local leadership and decision making, a devotion to community and personalized service.The company offers flexible equipment loans designed to meet the various needs in financing equipment purchases, helping to put their clients’ cash to work in other ways. Whether financing the purchase of a new vehicle for a business, the cost of new equipment for a plant, or large asset acquisitions such as aircraft for corporate travel, Chemical Bank designs personalized programs specifically customized to their clients. Their team of loan professionals is known for their detailed attention throughout the loan process.                                                                                                                                      

    Much like NAFA, Chemical Bank Commercial Finance is dedicated to helping their clients develop, finance and accomplish their dreams. Chemical Bank and NAFA promote excellence in leadership, offering expert advice in the aviation finance industry and sharing in the satisfaction of their clients’ successes. 

    For more information about Chemical Bank Commercial Finance, visit www.chemicalbank.com

    About NAFA:  

    The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit www.NAFA.aero.

  • Tracey Cheek posted an article
    Buyer Behavior Over the Next 10 Years see more

    NAFA member, Chad Anderson, President of Jetcraft, discusses how findings from their 10-year market forecast reflect real-world trends in the private jet market.

    The annual NBAA-BACE trade show is defined by one thing – an industry-wide interest in, and passion for, aviation.

    Which is why Aerion’s announcement – that the first transatlantic supersonic jet since Concorde would soon be taking to the skies – was greeted with such enthusiasm at this year’s show. Aerion announced that the jet is on track to fly in June 2023, with the first transatlantic crossing the same year, 20 years after the celebrated Concorde flew its last.

    Click to Enlarge

    The faster-than-sound business jet will undoubtedly be a market disruptor, particularly given its anticipated intercontinental capabilities, which will be a key indicator of its market performance. According to Jetcraft’s new 10-year market forecast, those regions where business needs are increasingly globalized will take the lead in terms of unit deliveries. North America is set to account for 60% of deliveries (5,241 units) over the forecast period, with Europe taking second place at 18% (1,572), and Asia Pacific third at 13% (1,136).

    Looking beyond new models to the pre-owned market, inventory levels are finally back to pre-recession levels, resulting in an increase in market competitiveness – and often more than one buyer for each aircraft. Some of the best deals are now made before an aircraft is even advertised. So, for both buyers and sellers, the need has never been greater to work with a consultant that has inventory visibility and can provide up-to-the-minute market insight.

    It’s important to note, however, that buyer profiles have shifted slightly. Our analysis shows that some Fortune 500 companies have yet to return to historical aircraft transaction levels, as businesses are focusing on other financial priorities, such as share buybacks and paying down debt. This means they may not jump back into purchasing aircraft as quickly as we would have hoped.

    Nevertheless, we anticipate that the increase in individual buyers will more than offset this. Worldwide wealth creation has spurred growth in family offices that are now offering a wide variety of specialized services, including business aviation. Together with the increase in block charter and fractional programs, this is exposing more ultra-high net worth individuals to the industry than ever before.

    The lessons learnt in the industry over the past decade, since the economic downturn, have meant a slow return to optimism. But we’re confident that these lessons will ensure sustainable growth in business aviation for years to come, which is reflected in our 10-year market forecast. Ours is an enduring industry, and one with a buoyant future ahead.

     

    This article was originally published in Jetcraft's Jetstream Journal on November 30, 2018. 

  • Tracey Cheek posted an article
    Scaling the Heights see more

    NAFA member, Brian Proctor, President and CEO of Mente Group, reflects on a record 2018.  

    Q: It seems that 2018 is turning out to be a year when a lot of aircraft get bought and sold, how has it been for you and Mente Group? 

    BP: We are having a record year, both as far as buying and selling aircraft are concerned. We are already up on the whole year 2017, and we still have the fourth quarter in front of us. At this rate, and with the transactions already in the pipeline for the fourth quarter, I would expect 2018 to be around 40 percent better than last year, for us.  

    At the same time, our appraisals business is up around 200 percent on last year. We started this business two years ago and it is growing rapidly. That is a good sign because it means that the banks and finance companies are seeing a lot of demand from people who want to finance aircraft transactions. 

    Q: Is it mostly the banks and insurance companies that you are doing appraisal work for? And is that mostly for pre-owned?

    BP: It is the banks and leasing houses that are keeping us busy. We do a lot of new aircraft appraisals as well. You have to remember that every negotiation with an OEM over a new aircraft purchase is different, and every aircraft is optioned differently. So, lenders want to make sure that what they are financing has the value that they have been led to believe it has. 

    Much of what we do is document driven rather than going out on site and actually examining the aircraft. The banks use our appraisal to work out the loan-to-value structure for the deal that they feel comfortable with.

    We started the appraisal business around two years ago and we have made significant investments in the business since then. We have added another experienced aircraft appraiser to the team, plus a data scientist who manages our online database. We have put a lot of money into this and it allows people to go online and manage their portfolio of aircraft. Last year our database quoted 700 aircraft transaction datapoints and it is up almost as much again so far this year. 

    Q: What are you using to drive data in this database?

    BP: We have a number of sources for the data, but most of it is driven organically by our own researchers and sales folk, plus the business development people. We qualify the database by the quality of the data source and we prioritize our own data, and that of our contacts, since we know this data is going to be good. 

    Q: How important to you is the appraisal business?

    BP: It has been very good for us and we are working at extending the reputation and reach of our appraisal service in the market. What is really good for us is that it touches a different clientele and is also more stable in terms of cash flow, so it is a very useful additional revenue stream for us. 

    Q: How much do you think Trump’s 100 percent expensing of new and pre-owned aircraft is driving the current deal flow?

    BP: It has been very significant. Remembering back, the Bill was signed off on the 18th of December 2017 and by the end of the year, or inside of two weeks, we had two clients come forward and buy aircraft. Moreover, those transactions were not even on our radar on December 18th. So that shows the kind of catalyst the Bill was for deals. 

    Right now, we have a number of clients working to get closure on deals before the end of calendar year 2018 so that they can claim the 100 percent depreciation against the current year’s profits. It is a huge incentive.

    However, we have two headwinds in the market right now. The first is that it has become increasingly more difficult to find good quality aircraft. The second is that when you do get them it is getting very hard to get them into an MRO to get pre-appraisal delivery work done on the aircraft. The MROs are all struggling with maximum capacity. Where it used to be possible to phone them up and get a plane booked within a week, now you are lucky if they can fit the job in next month or the month after. 

    Q: Playing Devil’s advocate for a moment, do you worry that sales are perhaps bunching up and you could be looking at a long at spell a bit further down the track as far as transactions are concerned?

    BP: What I say is bring on the sales. I never worry about sales bunching up. But there is certainly price pressure out there now. I have seen several clients who were looking for pre-owned aircraft, shift to considering new aircraft because the price differential between the two is no longer as attractive as it was.

    Clearly, it is becoming a very good time to be a seller, though finding a good replacement aircraft when their existing aircraft goes away, is likely to be a problem. We are not back yet to the crazy days of 2007, but I would liken the current period to what we saw in, say, 2004 or 2005. 

    Q: What are you seeing with respect to the slimming down of pre-owned inventory?

    BP: We have done six G550 transactions in the last two months. When we started the search for suitable G550s for a particular client back in February this year, there were about 30 of them on the market. We began to whittle the choices down and the numbers kept shrinking as we were evaluating them. We ended up with just three aircraft that we could show the 
    client. The point is that you cannot even say that there is, say, 3.2% of the fleet of a particular model available in the pre-owned market. If you have a discerning client  with  reasonable  constraints  on  what  they  are looking for, you could end up with just two or three aircraft to pick from, even if there was 10 percent of the fleet available. 

    Q: An impossible question, admittedly, but how long do you think the present upturn can last for?

    BP: North America is booming, and we are starting to see a lot more interest in aircraft acquisitions out of Western and Eastern Europe and Africa. The Middle East is still quiet and has yet to turn up. So, I would say there is at least a year of strong demand out there that has yet to make its way to the market. 

    Another point is that if you see the US dollar turning down, that will really stimulate demand for aircraft from Europe and Asia, since it will be tantamount to a big price discount on US manufactured aircraft.

    This article was originally published in Business Aviation Magazine, August 2018, p. 26. 

  • Tracey Cheek posted an article
    What to Ask When Your Aircraft Lease is Expiring see more

    NAFA member, Steve Day, Head of Sales - Americas with Global Jet Capital, discusses the questions you should be asking when your aircraft lease is expiring.

    Your aircraft lease arrangement is coming to an end and decisions need to be made on what to do next. What are the questions you need to be asking? 


    1. Should I stay in my current aircraft?

    If you like your aircraft and it continues to fit into your business goals, it may be very easy to extend your lease to retain the same plane.

    The advantages of sticking with your current aircraft are obvious including retaining the same staff and (likely) the same hangar space, no need for additional certifications, and no new maintenance requirements—the list goes on.

    Not only that, you’ll probably be looking at minimal, if any, additional capital outlay as you move into the extended agreement. You may even be able to roll in some additional upgrades and improvements.

    That adds to the peace of mind you’ll have when you stay with something that’s been working well for you.

    A lease extension can also be a useful stop-gap measure if you’re not ready to transition. If you don’t have a plan in place or things are in a state of flux, a lease extension can help you find time to regroup.

    Let’s assume you want to move into a new aircraft, but the model you want won’t be available until a year after your lease expires. A flexible financing partner will work with you to create terms that will accommodate your timeframe and move you into the new lease seamlessly.


    2. How does my transition plan fit into my business goals?

    Perhaps recent tax changes have made you take a closer look at your approach to aviation. Perhaps your current aircraft is no longer meeting your needs. Perhaps you’re expanding into new jurisdictions. There’s certainly no guarantee that your aircraft needs will be identical to what they were when you first signed a lease that’s due to expire soon. But change is rarely a simple proposition.

    Larger aircraft don’t just come with a higher price tag—they also come with different operator certification requirements, maintenance needs, more expensive insurance and higher costs for hangar space.

    Together, those new requirements can be a larger-than-estimated drain on cash flow and time.

    Smaller aircraft, while typically less expensive, can create their own logistical struggles. Even changing where you’ll be keeping your aircraft can be a minefield. A holistic and proactive approach to transition goes a long way towards preventing budgetary surprises, and experienced operating lease providers can be a big help during this process.


    3. Do I have a conceptual transition plan?

    If the answer isn’t yes, you may be in for some turbulence. To leverage the flexibility advantages of leasing, a proactive approach to transition is key. If you don’t start planning early, especially if the aircraft you’re considering could take more than a year to deliver, you might be setting yourself up for problems as the end of the term draws near.

    In the best case scenario, a prepared lessee can move from one aircraft into another with minimal issue and little to no overlap or gaps in lease terms.

    In the worst case scenario, an unprepared lessee can find him or herself without an aircraft due to production availability of new aircraft, or difficulty finding the right plane—which can create huge logistical problems.

    Alternatively, the unprepared lessee might find him or herself paying for, maintaining and managing two aircraft at once while the initial contract wraps up.

    That’s why it’s generally a good idea to start making your transition plan 18 months before the end of the lease if you’re planning on leasing a new aircraft. If you’re planning on leasing a used aircraft, 6-12 months should be sufficient.

     

    4. What obligations will I be responsible for as I move out of this lease?

    Most lease obligations aren’t solely financial or limited to regular lease payments. Obligations to manage, insure, maintain and store the aircraft you’re leasing are important components of lease agreements, and can be a large component of the overall expenses.

    In addition, the return conditions specified in the lease will come with its own obligations – specifically written to protect the expected value of the returned asset.

    If you’re unprepared, you might find yourself blindsided, or underbudgeted as the lease term ends.

    You’ll find that an experienced lessor should be flexible in order to maintain an ongoing relationship, even if it’s a pre-expiration move into a different aircraft. In such cases, it’s usually possible to amend or extend the existing contract as necessary.

    Early termination accommodations also exist, and they don’t necessarily have to come with a hefty penalty. Speak directly with your lessor and clearly articulate your needs and concerns as you plan your transition to find out what may be possible for you.
     

    5. What kind of obligations am I getting into if I transition to a new lease?

    Not all contracts are created equal. Depending on the experience of the lessor and how the agreement is structured, your obligations may be reasonable—or they may be draconian. Lessors that are focused on the corporate aviation market, typically take the time to fully understand their customer’s needs.

    They manage their business models with a long-term view. They’re much more likely to structure transactions that are truly win/win agreements.

    Both financial and non-financial obligations (maintenance, operation, etc.) affect the expenses, so it’s important to fully understand what you’re in for with a new lease and plan accordingly.

    If you’re looking for a flexible operating lease that meets your requirements with minimal bureaucracy, you’ll likely want to consider a partner that has the expertise and market presence that cultivates customized solutions for its clients.

    For more information, visit Global Jet Capital.

    This article was originally published on AvBuyer on May 9, 2018.

  • Tracey Cheek posted an article
    Private Aviation Tax Considerations for Prospective Aircraft Buyers see more

    NAFA member, Essex Aviation, discusses aviation tax considerations for aircraft buyers.

    Acquiring a private aircraft for personal use is an exciting experience, one that opens innumerable doors for frequent travelers — however, to ultimately realize the benefits of your investment, you must first ensure that you’ve fully accounted for all financial considerations, especially aviation taxes.

    Too often, private aircraft owners aren't fully informed of certain taxes that are involved in the ownership and operation of the aircraft; which are important as it relates to their operating budget and the overall aircraft ownership experience. That’s because tax considerations should be structured not only during the initial transaction, but throughout the ownership lifecycle, and can affect how you decide to utilize your aircraft.  

    Read More

    This article was originally published by Essex Aviation.

  • Tracey Cheek posted an article
    Is a Business Jet Lease Right for You? see more

    NAFA member, Keith Hayes with PNC Aviation Finance discusses business jet leases.

    Has the aircraft lease market changed since the Great Recession? What are the popular lease types available to business jet owners? AvBuyer spoke with PNC’s Keith Hayes to discuss how leases can benefit certain companies and individuals.

    Keith Hayes began a lengthy career in the finance sector with GE Capital in 1985, having joined straight out of college. Starting as an internal auditor, he held several roles within the company transitioning into a credit role and then into a sales/finance role covering a multitude of asset types.

    In 2004 he joined the GE Corporate Aircraft group as the National Sales Manager and has been in the aviation finance sector ever since. Today as the National Sales Manager for PNC Aviation Finance, he is well placed to offer insights into the Business Aviation finance market. He is based at the company’s Boise, Idaho offices.

    AvBuyer spoke with Keith to discuss the types of leases commonly available to prospective business jet owners; trends in the aircraft lease market; and advice to buyers considering lease as an option for their next business jet purchase.

    AvBuyer: How has the aircraft lease market developed/changed over the past few years? Do you foresee further change in the short- to medium-term?

    Hayes: The biggest changes have taken place post-recession. Prior to the recession, a lot of aircraft were leased under 10- to 12-year leases with flexibility for the lessee to terminate early within years 4-6 of the lease.

    Following the recession, when aircraft values began to plummet, lessees generally found they were ‘under water’ in their leases. Many had no choice but to continue to lease the airplanes until the end of the lease term before returning them to the lessor (the bank).

    This was not a positive experience for the lessee or the lessor. Due to the challenges associated with selling the returned aircraft, many lessors stopped offering lease products altogether. Others, PNC Aviation Finance included, continued to offer the product and, now that aircraft values are stabilizing (along with the recent changes in the tax laws), lessors are seeing an uptick in lease activity.

    Looking ahead, there are changes taking place in certain accounting rules coming into effect in 2019 and 2020 that will cause leasing to not be as advantageous for financial reporting purposes.

    Among the changes is a requirement from the Financial Accounting Standards Board for organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases, and to provide disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.

    However, we believe aircraft leasing will continue to be a value-added structure for certain owners.

    AvBuyer: We’re hearing various forecasts of continued growth in the new and used aircraft sales marketplace during 2019. Would you expect to see aircraft leasing influence the aircraft sales trends over the coming year? If so, how?

    Hayes: I have always said that financing does not drive the behaviour of aircraft owner. The average aircraft owner changes their airplane every four-to-five years regardless of whether they paid cash, financed or leased their airplane.

    Some would argue that when banking ‘became tight’ during the last recession, aircraft sales were impacted, but I question if this was truly a factor. Cash has been, and continues to be, the number one method of paying for an airplane.

    But as the global economy continues to thrive, I anticipate our industry will continue to grow; as companies and wealthy individuals continue to have opportunities to deploy cash into high-return assets, they will elect to finance or lease as opposed to paying cash for a ‘non-earning’ asset. Meanwhile, the lease versus finance question typically is driven by the owner’s tax appetite or financial reporting needs, not simply the drive to buy or not buy.

    AvBuyer: For those weighing-up whether a lease is right for them, what are the common lease options, and what type of aircraft owner is each tailored to?

    Hayes: In short, there are two types of leases: A tax-oriented operating lease (in which the lessor owns the airplane for Federal Income Tax purposes); and a synthetic lease (in which the lessee owns the plane for Federal Income Tax purposes).

    Typically, an owner may enter a synthetic lease for a variety of reasons, including deferral of state sales tax and/or financial reporting and off-balance sheet treatment. Under a synthetic lease, the lessee would have full availability of all tax benefits for Federal Income Tax purposes.

    Meanwhile, an owner may enter a tax-oriented operating lease for the same benefits realized in a synthetic lease but, most likely, they would do so because they cannot fully utilize the tax benefits.

    There are a number of reasons why this would be the case including their level of personal use, passive versus active income, carrying forward of net operating losses, and more. Under a tax-oriented operating lease, the tax benefits are ‘passed’ to the lessor, and the lessor in return offers a lower cost of funds to the lessee.

    Commonly, these tax-oriented leases are structured with eight- to ten-year terms with early buy-out options at a point determined by the lessee.

    AvBuyer: For those considering whether an aircraft lease is the route they want to take into aircraft ownership, what are the most important things for them to understand?

    Hayes: There are a number of variables an owner would want to keep in the front of their minds when leasing an aircraft.

    While the documentation process for a lease (versus that for a loan) is not overly complicated, there are certain conditions you want to make sure are ‘market’ ones, including the return provisions, usage provisions and reporting requirements.

    Additionally, the inclusion of an early buyout in the lease is an option the lessor may or may not offer. It is up to the individual lessee and their specific requirements to decide if this option is important.

    Also worth considering, some lessors have a tax appetite while others do not. The lessee should recognize a lower cost of funds which can be analysed through the early buy-out in exchange for passing the tax benefits to the lessor. If it appears the rate of return is equivalent to debt financing, it could mean the lessor has no tax appetite.

    Lastly, in many states, sales tax is paid on the rentals via use tax (as opposed to upfront payment). This can result in a significant deferral and, in some cases, avoidance of sales tax altogether (i.e. if the lease is terminated at an early buyout point and the airplane is then sold, the use tax on the remaining rental is potentially avoided).

    More information from https://www.pnc.com/en/corporate-and-institutional/financing/lending-options/pnc-equipment-finance/aviation.htm

    This article was originally published on AvBuyer on January 7, 2019.

  • Tracey Cheek posted an article
    Top Five Jet Maintenance Thoughts (Before You Buy) see more

    NAFA member, Brendan Lodge, Advisory Services & Aircraft Specialist at Jet Support Services, Inc. (JSSI), offers tips on how to understand an aircraft’s maintenance costs, and budget accordingly - before buying.

    Purchasing the wrong aircraft has potential to be economically and operationally disastrous.  

    Whether new or used, different models should be considered like knives in a chef’s drawer—they each have different capabilities depending on the budget and mission profile of the buyer.

    Once a decision is made to purchase a used aircraft, most buyers start narrowing down the models that will meet their needs. However, many may not focus on how operating costs can vary greatly depending on the aircraft.

    The ongoing maintenance costs (scheduled and unscheduled) are the most significant operating cost after fuel and can be a real budget-breaker. A thorough examination is therefore required before buying an aircraft, and appropriate management is necessary thereafter.

    Following are five critical areas from a maintenance perspective that should be understood and budgeted adequately for before purchasing a used aircraft.

    #1: Advice

    Firstly, hire expert advice. Whether it’s a professional broker that you mandate exclusively to work for you without conflict, or a recognized industry consultant to support your Flight Department, you should budget for this expense. The investment will be worth every penny! Crucially, the advice needs to be independent, and entirely unbiased.

    There are also helpful software tools available from independent sources that can help you compare aircraft and develop a thorough budget. Input should include an analysis of the maintenance status of the aircraft to evaluate and appraise the maintenance adjusted value, as well as to account for any challenges or costs associated with the potential transfer of registration to another country or state.

    #2: Engine Status

    Know the condition or status of the engines and their value and be informed of where the engines are in their maintenance cycles.

    If the engines are on a “hard-time” inspection program, you need to know how long it is until the next major maintenance event and whether it is a hot section inspection or an overhaul. If the engines are on an “on-condition” inspection program, you need to know when the next borescope inspections are due and account for these in the budget.

    Are the engines covered by a maintenance program and, if so, what exactly is covered by that program? These programs vary and it’s best to contact the program provider to understand the details of the coverage. Some programs can be sold with the pre-enrolled aircraft and some cannot.

    Sometimes owners want to take the equity in the maintenance program and transfer it to a new aircraft, so those benefits would not be available to the aircraft with the sale.

    In addition, you should know what provisions are in place for payment or coverage of loaner engines whenever off-wing maintenance events are required. Most operators do not want the airplane grounded while major engine maintenance is happening.

    Accordingly, loaner engines are common practice, but sometimes there is limited availability for specific engine models, which could drive the costs up. It’s always better to plan and budget for these events in advance.

    #3: Airframe Inspections

    All aircraft will be subject to frequent airframe inspections and, for larger cabin aircraft, the major airframe inspections can easily exceed $1m. It is crucial that you know when the next major inspection is due as part of the due diligence before making an offer on an aircraft.

    When significant expenditure is due it will affect the aircraft value.

    Other considerations include the time it will take to do the inspections. Unlike engines that can be removed and replaced with loaners, the aircraft is not available while major airframe inspections are in progress and many owners will make plans to charter or contract supplemental lift during this time. This is another item to add to the budget.

    Ongoing airworthiness directives (ADs) and service bulletins (SBs) that may be issued for your aircraft can also impact the budget. You must check for these before purchasing a used aircraft. It is always wise to ask if there is an airframe maintenance program enrollment and if it covers any of these costs.

    #4: Unscheduled Maintenance

    Unexpected maintenance events will happen no matter what type of aircraft you choose and can be a difficult expense to calculate over the lifecycle of the aircraft. Your advisor or trusted consultant will give you a budget estimate based on factors including make, model, and time on the engines and airframe.

    Keep in mind that the OEM’s warranties do not cover all the unexpected costly repairs that may be needed in the first 5–10 years of a business jet’s life. Once again, enrolling the aircraft onto a maintenance program could be the best way to budget for such expenses.

    #5: Regulatory Requirements

    In addition to current airworthiness regulatory requirements, there are future mandates that come along and require upgrades or changes to the aircraft that will impact your budget.

    In the US, many aircraft on the market are not yet compliant with the new Automatic Dependent Surveillance-Broadcast (ADS-B) or Future Air Navigation System (FANS) 1/A requirements.

    As we approach the January 1, 2020 deadline, slots at maintenance shops are filling up fast and, just like any other supply and demand cycle, the cost of getting this work done rises with each passing week.

    It is undoubtedly a good idea to look for an aircraft that is already compliant, or at least budget for a premium cost for any aircraft that is not yet compliant.

    Supplemental Type Certificates (STC) are usually required for aftermarket equipment upgrades and these associated costs should also be accounted for, including the acceptability of existing STCs between different aircraft. When an STC is not acceptable to the new register the solution can be very costly in terms of both time and money.

    In Summary

    There are countless items to consider when purchasing an aircraft but with the right tools and expertise, you can ensure the right aircraft is purchased for your mission profile and budget.

    More information from www.jetsupport.com.

    This article was originally published in AvBuyer on July 20, 2018. 

  • Tracey Cheek posted an article
    Financing Your Business Aircraft: Reaping Ownership Benefits, While Avoiding Leasing Pitfalls see more

    NAFA member Martin Ormon, President and Founder of Aircraft Finance Corporation, compares the benefits of buying versus leasing your business aircraft.

    With the new year comes the first full-year's tax filing under the Tax Cuts and Jobs Act of 2017.  If your accountant or Chief Financial Officer (CFO) works like most, you'll have already engaged in a couple of briefings on the charges - on adapting to the law's new language - and you probably have another meeting planned to lay out for you the impact of those changes on this year's numbers.

    For those looking to buy or lease a business aircraft after holding-off a while to weigh up the impact of the 2017 tax changes, now would be an excellent time to answer a recurring question asked before companies make a major decision on a big-dollar equipment outlay.

    Should you buy or should you lease?

    Each approach brings its own benefits and limitations, just as leases themselves vary in type to meet the differing needs of the operator.

    But Martin Ormon of Aircraft Finance Corporation questions why so  many operators are choosing to lease older aircraft, knowing that to keep it at the end of the lease means coming up with a buyout amount for the leasing company.  "Otherwise, they walk away with nothing but their receipts," Ormon notes.

    While Ormon acknowledges that for later-model business aircraft lease terms may benefit an operator's cash flow picture, "for many of the older aircraft (7 years and up), buying it with today's more attractive finance terms can make more sense for cash flow - and at the end of the term leave the owner with an asset, paid off and wholly owned," he elaborates.

    "A lease structure and the supply of good aircraft and low financing costs for 20 years makes more sense financially than leasing."

    But then, financing aircraft sales is Martin Ormon's business.  He owns and operates Aircraft Finance Corporation, a rare lending operation with regular terms as long as 20 years for older business-turbine aircraft.

    Aircraft Finance Corp:  The Backdrop 

    When we last spoke with Martin Ormon in 2016, the topic focused on understanding the benefits to clients from dealing with Aircraft Finance Corp. versus more traditional banks and finance companies, particularly when financing business aircraft aged 10 and older.

    Since then Ormon's business has continued to thrive, so we sought his input on the lay of the land in light of a small renewed 'boom' of recent months.  Some credit the boom to the 2017 tax-reform law signed into law 13 months ago.  Others credit the resurgent economy and strong market growth - a more tentative view recently.

    Still others cite both of the above and a resurgence in market demand after a lengthy period in which many buyers held back.  Against the backdrop of the Great Recession and the crash in business-aircraft sales, the resurgence, for whatever cause, is welcome among companies servicing business-aircraft transactions.

    What hasn't changed is the availability of good finance terms, according to Ormon.  "You get the deals from the secondary (market) guys; you don't get the deals from the guys who make the business."

    That means operators looking to buy an older jet still face tougher terms than operators who are able to shop for new or near-new aircraft.  "Leasing terms aren't what they once were," Ormon claims.  "The guys in the leasing business today are struggling more because of the nightmare hit on residual values.

    "And the residual value on some of these aircraft has gone beyond hitting bottom - and they're still getting a resurgence in market value because of increased demand."

    Aircraft Finance Corporation continues to do a banner business because of its combination of competitive interest rates, competitive down-payment terms and loan terms as long as 20 years.

    "The one thing that i've learned , "Ormon offers, "is that interest rates do not dictate demand for aircraft purchases - while it may effect some who don't have the credit history others do."

    Used Aircraft Competing Against New

    Ormon cites a number of loans recently written by Aircraft Finance Corporation, loans which took advantage of depressed prices of some older aircraft with loan terms more competitive than lease terms.

    "With values where they are today, why would anyone buy a new aircraft?" he asked.  "With our 20-year amortization system we can make an aircraft less expensive than leasing."

    One example Ormon offers is for a Bombardier Challenger 605.  The owner's situation had changed and they needed some relief from the cash-flow pressures.  "We refinanced that Challenger 605, which ahd payments exceeding $70,000/month on a seven-year amortization.  We did it for 20 (years) and their payment came down to about $20,000/month, solving the owner's problem."

    Ormon says that many of the finance outfits don't want people to know that 20-year loan terms are available.

    Lease Versus Buy

    "At the end of the day, that 20-year term gives a lot of people more financial freedom and flexibility," Ormon highlights.

    Todday's terms available from financing firms like Martin Ormon's make financing more attractive than leasing.  "You'd still have to buy out the residual value to own that aircraft at the end of the lease.  That or accept never owning the airplane."

    Weighed against a lease structure with today's supply of good aircraft, the low financing costs for a 20-year term makes borrowing to buy more financially sensible than leasing, Ormon stresses, adding that Aircraft Finance Corporation underwrites its own financing, which makes dealing with the company more streamlined.

    This different approach works for the buyers Ormon finances, for the sellers he helps sell their old aircraft, and for Aircraft Finance Corporation of a business.

    Ormon's small aircraft finance bank began operations in August 2000, and he let it make money for him while he continued in his own business.  "I didn't think much more about the small amount of business we were doing ... until the downturn," he recalls.  

    "Now, it's going great, because we help people and they come back again for their next deal."

    It's good for Business Aviation - and what's good for Business Aviation is good for the aviation economy.

    This article was originally published in the February issue of AvBuyer Magazine

     

  • Tracey Cheek posted an article
    JSSI Advisory Services Joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE

    FORT LAUDERDALE, Fla. - Feb. 14, 2019 - National Aircraft Finance Association (NAFA) is pleased to announce that JSSI Advisory Services has joined its professional network of aviation lenders as a stand-alone member. This Jet Support Services, Inc. (JSSI®) company supports a global customer base with ad hoc services and is a leading provider of aircraft services to lenders, insurance companies and operators worldwide. 

    “NAFA members proudly finance, support, or enable the financing of general and business aviation aircraft throughout the world, and we’re happy to add JSSI Advisory Services to our association,” said Ford von Weise, President of NAFA.

    JSSI Advisory Services leverages 30 years of JSSI expertise and data to deliver technical advice and consulting services to clients. As an independent provider of maintenance support to virtually all makes and models of business aircraft, JSSI oversees 8,000 maintenance events per year with a global network of over 70 technical advisors. This depth and breadth of resources, along with its 2018 acquisition of Conklin & de Decker, have allowed JSSI Advisory Services to gain market share and position itself as a “one-stop shop” for aircraft owners, operators and financiers seeking guidance on often complex aviation matters. 

    “We’re proud to officially join NAFA and look forward to serving members with an unparalleled suite of services,” said Jason Schwab, President of JSSI Advisory Services and Conklin & de Decker. “We can help members in any location at every stage of the aircraft life cycle, from acquisition to operation to retirement,” Schwab added. 

    JSSI Advisory Services delivers many high-level professional services, including maintenance event management, ASA- and USPAP-certified appraisals, and on-site technical inspections of aircraft, records, and flight operations. Additional services include maintenance cost forecasting, completion inspections, fleet monitoring, delivery acceptance and ad hoc consulting engagements.

    For three decades, JSSI has been the leading independent provider of maintenance programs to the aviation industry, covering airframes, engines and APUs. JSSI provides comprehensive, flexible and affordable financial programs and tools for managing the often unpredictable costs of operating and maintaining business and commercial jets, turboprops and helicopters.  

    Much like NAFA, JSSI Advisory Services is shaped by a culture of collaboration, innovation and integrity, striving for excellence in the aviation industry. JSSI and NAFA continue to foster the highest standards in service and safety through their support of business and community. For more information about JSSI Advisory Services, visit www.jetsupport.com/advisory-services.  

    About NAFA: 

    The National Aircraft Finance Association (NAFA) is a non-profit corporation dedicated to promoting the general welfare of individuals and organizations providing aircraft financing and loans secured by aircraft; to improving the industry's service to the public; and to providing our members with a forum for education and the sharing of information and knowledge to encourage the financing, leasing and insuring of general aviation aircraft. For more information about NAFA, visit www.NAFA.aero.

  • Tracey Cheek posted an article
    Lessons Learned in Aviation Financing see more

    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.