aircraft finance

  • NAFA Administrator posted an article
    Your Private Air Transportation Options – Making An Informed Decision and Executing It Correctly see more

    NAFA member, Anthony Kioussis with Asset Insight, hosts their latest podcast "Aircraft Ownership Lifecycle Podcast" featuring NAFA member, Lee Rohde President and CEO of Essex Aviation Group.  

    Lee Rohde discusses how the consulting company he founded advises aviation-related entities on a wide range of aircraft acquisition, strategic planning, financial, operational and management matters. Specifically, Lee covers:

    • Private Air Transportation options – what should prospective users consider in reviewing their options for meeting their travel requirements?
    • In the event an entity determines they want to acquire an aircraft, how should they go about identifying the best model to meet their travel requirements?
    • What factors have the greatest influence on the decision to acquire a new vs. a pre-owned aircraft?
    • The issues and complexities associated with refurbishing or upgrading a pre-owned aircraft.
    • The expertise an entity should secure if they are planning an aircraft acquisition.
    • The factors to be considered when determining an Offer Price for an aircraft.
    • What a pre-purchase inspection entails and why it is such an important part of acquisition process.

    Listen to the podcast here.  

    This podcast was originally published by Asset Insight.

  • NAFA Administrator posted an article
    Asset Insight Launches Podcast Series Focusing on the Aircraft Ownership Lifecycle see more

    July 7, 2020 – Asset Insight today announced the launch of a new podcast series, available through the company’s website (www.assetinsight.com) and across all podcast platforms, free of charge. The library of episodes is stocked with 15 to 30-minute sessions focused on all segments of the Business & General Aviation aircraft ownership lifecycle – Acquiring, Financing, Operating, Maintaining and Selling. Host Anthony Kioussis visits with expert guests from numerous industry organizations and sectors who offer best practices, timely advice, proven principles, and explore specific aspects of the business aviation industry.

    The Asset Insight Podcast library presently features 8 episodes, including sessions with Jay Mesinger at Mesinger Jets; Jim Blessing at Air Fleet Capital; Shelly Svoren at First Republic Bank; Lee Rohde at Essex Aviation; Jim Simpson at First Republic Bank; René Bangelsdorf at Charlie Bravo Aviation; Janine Iannarelli at Par Avion Ltd; and Ryan Waguespack with NATA. More podcasts will be made available each week.

    “Asset Insight is in a unique position to bring aviation professionals together to hold timely discussions in short, interesting, educational and entertaining on-demand podcasts.” said Tony Kioussis, president of Asset Insight, LLC and host of the series. “This new aviation podcast series offers our community the opportunity to select episodes and topics on their schedule, and according to their interest and business segment. As many of us work from home to maintain safe social distancing, our podcasts allow people to remain connected. The podcasts can also assist new personnel entering the industry; people that would otherwise find it challenging to secure such information.”

    Asset Insight Podcasts are available on Apple Podcasts, Spotify, Stitcher, Google Podcasts, www.assetinsight.com http://www.assetinsightpodcast.com, and wherever you get your podcasts.

    This release was originally published by Asset Insight on July 7, 2020.

  • NAFA Administrator posted an article
    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.

  • NAFA Administrator posted an article
    Sounding Board: Five Minutes With Shawn Vick, Global Jet Capital Chairman, CEO see more

    NAFA member, Shawn Vick, Chairman and CEO of Global Jet Capital, discusses business aviation.

    Shawn Vick is the chairman and CEO of Global Jet Capital, which helps corporations and individuals with the leasing and financing of new and pre- owned business jets. Vick has held leadership positions at British Aerospace, Gulfstream Aerospace, Bombardier, Landmark Aviation and Hawker Beechcraft. He is also a partner and member of the investment committee for AE Industrial Partners, a private equity firm. And he is a private pilot.

    Q. At the National Business Aviation Association Convention & Exhibition in October, Global Jet Capital had been having a banner year with an increase in the leasing and financing of business aircraft. Things changed suddenly with the COVID-19 pandemic. What is happening in the pre-owned market today?

    A. Leading up to March the pre-owned market–frankly the entire transaction market, new or pre-owned–was performing well when compared to the same period last year. Activity began to slow late in the first quarter as the virus took hold and demanded everyone’s attention. I think the beginning of this story is now well understood. Global reaction to the virus resulted in a fundamental shutdown of the world’s economies and business aviation was no different. As we sit here today, in the middle of May, flight activity is beginning to pick up–which is a very good sign. Transaction activity remains slow but has not ceased, and we feel there are a lot of owners and operators sitting tight right now waiting to see how this situation evolves. Despite the uncertainty, one thing is very clear–business aviation in the context of a global pandemic will be the most desired form of transportation as the world begins to get back to work.

    Q. What is your focus now?

    A. Since the beginning of this crisis, we’ve been primarily focused on the health and well-being of our employees. This began in February with the shutdown of our Hong Kong office and a full review of our disaster recovery plan, which includes a chapter on managing the business remotely. Since that time our Zurich, Danbury, [Connecticut]; Boca Raton, [Florida]; and Mexico City offices closed, and we have all been working remotely. While it’s been far from ideal, with the support of our video conferencing platform it’s been surprisingly efficient. We’ve also been using this “pause” in industry activity to focus attention on internal operating efficiency projects, including the transition to a new operating platform and commercial excellence initiatives. With respect to our current portfolio, we’ve naturally been paying very close attention and I’m happy to report the portfolio is performing very well. From a new business perspective, we entered 2020 with a very healthy backlog fueled by a new predelivery payment financing product we launched last year. As the crisis took hold, we managed to close several deals that were in late stages, and we are currently working with a number of clients on lease renewals and extensions. Moving forward, we are now beginning to explore reopening offices and getting our employees back to work in the safest way possible and in line with local government guidelines.

    Q. What do you see for business aviation in the near term?

    A. I think the answer to that question lies in the duration and severity of the financial disruption, and I’m not sure anyone has a crystal ball right now. But if the disruption is limited and we are heading in the right direction in the July/August time frame, with the economy beginning to rebound and the unemployment rate falling, I think that bodes well for our industry. These aircraft are as precious as they’ve ever been, particularly when one’s safety and security are a priority and you factor in social distancing. I think the bottom line is quite simple: If you can afford these assets, you’re going to keep these assets–and if you don’t have one and you can afford one, you’re likely going to acquire one.

    Q. What about aircraft values?

    A. I really think it’s too soon to say, but there is data we can look at for guidance, likely the most important of which comes from the OEM production environment. Most industry analysts are predicting a drop in new deliveries in the 30% range, meaning roughly 450 deliveries this year versus the original projections that were well above 700. And, it’s important to note, these are supply side forecasts at this stage–not demand side. As difficult as this is for the entire ecosystem, it may well act as a guardrail against significant devaluation. Also, we are not seeing a rash of distressed sales or a spike in new aircraft being listed for sale. In fact, these numbers have been coming down in recent weeks. Our sense is that owners and operators understand the value of these assets in this new context and are sitting tight as the situation unfolds.

    Q. How does this downturn compare to the recession of 2008 and 2009?

    A. It’s interesting that so much of the speculation is based on comparisons with 2008, when there is not much correlation. In 2008 the cause of the economic disruption was widespread failures in the banking systems that put the capital markets in a state of seizure. Right now, we’re dealing with the impact of a global pandemic. In comparison to 2008, government reaction and intervention has been swift and expansive. From an industry perspective, OEM production has been curtailed in a disciplined fashion to protect people–but the by-product is protection of backlogs and ultimately aircraft values. This is clearly a different environment.

    Q. What about the health of the business aircraft manufacturers?

    A. If you look at the impact of the Great Recession, several of the manufacturers got caught between a rock and a hard place with an almost instantaneous shutdown of market demand coupled with long supply chain agreements that were difficult to contractually modify. They really had no choice but to drive new product into a down market. Today, as a result of those lessons learned, the OEMs and the entire supply chain is far more agile. At this stage, this is a supply side problem resulting from shutdowns and furloughs across the entire ecosystem designed to stall the spread of the pandemic. From my perspective, everybody went into this situation together and everybody’s going to come out of it together.

    Q. What do you foresee as the split in demand from the North American and international markets?

    A. During the buildup leading to the Great Recession, the market shifted from being heavily dominated by the U.S. to a 60-40% international versus domestic split. Everyone thought that was going to be the new normal as the BRIC countries [Brazil, Russia, India and China] flourished. But as we now know, due to a variety of internal and external factors, with exception to China, the BRICs have not dominated the global economy as once predicted. The result, in term of business aircraft, is that over the past decade we’ve seen a dramatic shift back to U.S. dominance of this market. This dominance will likely ebb and flow to some extent over time, but there’s not a lot of data to support a major shift back to international dominance.

    Q. Are there any concerns on the international front?

    A. The sooner we can get through our current trade dispute with our largest trading partner and sit down at the table and have productive, meaningful and material discussions rather than throwing sticks and stones at each other and turning this pandemic into a political discussion, I think the better off we’ll all be. I also believe that will ease tensions, creating a more positive environment for the global cooperation that will be required to get the world’s economy working gain. I’m off my soapbox.

    Q. How has aircraft financing changed or not changed so far?

    A. Unlike the Great Recession, where the global banking system suffered from a near-complete lack of liquidity and the capital markets seized up, the banking system right now is in good shape. Liquidity is sound and capital is available. Despite this, lenders are being very cautious for the time being. This is completely in line with the overall industry “pause” that we are all experiencing. The aircraft financing industry will continue to monitor the overall economic environment and the health of the business jet market in order to better understand the impact this disruption is having on demand and, more importantly, aircraft values. Let’s face it: Finance and uncertainty do not coexist very well, and you could argue that we are currently at a point of maximum uncertainty. As the impact of the pandemic becomes clearer and key market indicators related to supply and demand settle into a new normal, the aircraft financing industry will follow suit.

    This article was originally published by Molly McMillin of Aviation Week on May 18, 2020.

  • NAFA Administrator posted an article
    Webinar: Ready to Buy & Fly? see more

    Educational Webinar Covers Best Practices & Acquisition Strategies Teaming Strategies

    Are you thinking about purchasing an aircraft? It can be an overwhelming experience, especially if you’re a first-time buyer, but there are experienced industry professionals who are ready to help.

    In a free educational webinar on May 28 2020, Essex Aviation President and CEO Lee Rohde joined GKG Law Principal Chris Younger to talk about everything you need to know when it comes to purchasing an aircraft.

    The webinar, Ready to Buy & Fly? Best Practices & Teaming Strategies for a Successful Aircraft Acquisition, includes resources, tips, and information on the following topics:

    • Steps to a successful aircraft transaction (including a week-by-week timeline!)
    • The necessary parties you should include when it comes to purchasing a plane, including:
      • CFO, CEO, and the COO
      • Corporate general counsel
      • An aircraft technical consultant
      • Commercial lender
      • And many more
    • Key closing checklist items
    • Potential post-closing issues
    • Net operating loss (NOL) carrybacks and The Coronavirus Aid, Relief, and Economic Security (CARES) Act

    Essex Aviation handles everything from new and pre-owned aircraft acquisitions to private jet charter counseling and membership. GKG Law works with purchase and sale transactions, aircraft ownership, federal and state tax planning, aircraft ownership trusts, and more.

    To find out more about purchasing an aircraft or to ask our industry experts any questions, contact Essex Aviation today.

    View Webinar Here

    This webinar hosted by Essex Aviation and GKG Law originally aired on May 28, 2020.

     

  • NAFA Administrator posted an article
    How is the Coronavirus Affecting the Closing Process for Aircraft? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the challenges of aircraft closings during the Coronavirus pandemic.

    Unlike real estate, where the exchanged property does not move, the challenge with closing on an aircraft is that eventually it must be flown to its new home. It’s a rare transaction where buyers purchase an airplane from their home airfield. Therefore, how to legally move the aircraft is one major concern for buyers during the coronavirus pandemic. Another is how to get a pre-buy inspection done.

    First, there is the sticky problem of getting an aircraft inspected. It’s not clear whether maintenance and repair shops are currently open to perform pre-buy inspections, or whether their employees can even report to work. Some states have not deemed aviation techs “essential.” What jobs are deemed “essential,” how, and by whom such job designations will be enforced remains up in the air. Even if aviation techs are, parts suppliers might not be. That means needed parts may not get delivered. In normal times, a closing might take 30 days. In these abnormal times, plan on the process stretching to 45 days or more.

    Beyond that, is it legal for a ferry pilot or the new owner to fly an airplane from the airport where it is hangared to its new home base?  State laws vary on the subject. How complicated it will be to transport the aircraft may depend on factors like the route of flight and the number of states involved. Is the airplane going from California to Maine? Or from Wisconsin to Indiana? One has to ask oneself, “Am I going to have a challenge from this state?” Other questions follow, including, “Which governing body would enforce such a challenge — state or federal?” “Is it within FAA or state jurisdiction?” None of that is easy to navigate.

    If you can imagine the difficulty of flying from one European country to another and having to deal with the balkanized ATC system there, then you have some idea of the current complexity surrounding moving an aircraft across state lines during this pandemic. At AOPA Aviation Finance, (“AAF”), our advice is to call AOPA’s Legal Services to get better clarity on your specific situation.

    That is a great benefit of AOPA, having multiple resources all in one place. This complex situation is the perfect time to tap into them.

    Great advice. Great rates. From helpful and responsive reps you can trust. 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 (800.627.5263), or click here to request a quote.

    This article was originally published by AOPA Aviation Finance Company on April 30, 2020.

  • Tracey Cheek posted an article
    Best Time to Sell an Older Jet see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the ideal time to sell an older aircraft. 

    Above and beyond the upfront cost savings, benefits to acquiring a used jet in great condition include avoiding much of the increased depreciation that besets aircraft in those early years. Of note to sellers, the inventory for well-maintained, 15-year old or younger turbine aircraft is severely limited. That translates into high demand and a market that's in your favor.

    As with many things, putting an older, well-maintained jet on the market involves the right timing. It may sound counterintuitive, but the best time to sell an older jet is right after you’ve done the scheduled, heavy maintenance on it, after you've brought your jet up to date on all of its maintenance events. 

    A jet's optimum selling price point occurs when the aircraft has its lowest maintenance exposure to asking price ratio (ETP). That ratio is expressed as the value of an aircraft as a percentage of unaddressed maintenance due on an aircraft versus the overall market value of the aircraft. When the ETP is at its lowest is also when the aircraft is most desirable. That's why historically, planes that have the lowest ETP tend to sell the quickest. 

    To be clear, this does not include avionics upgrades, only scheduled maintenance. Retrofitting avionics on older jets is not just an expensive proposition, it's also a subjective one. The vast range of options available make it virtually impossible to please everybody. Plus, the money a seller sinks into new avionics probably will not be recouped in the sale. It's better therefore to let the new buyer install the avionics suite of their dreams post-acquisition.

    If it's possible, coordinating the completion of heavy maintenance items with the start of the last quarter of the calendar allows the owner of an older, well-maintained jet to take advantage of the best calendar time of the year to sell it--September through December. That's because many businesses have a fiscal year and a calendar year that parallel each other. Those that do tend to more closely assess ways to manage their bottom line as they approach Q4. That heightened focus on the year-end clarifies whether selling the jet or acquiring one is an appropriate income offset option. For many, it's the perfect time.

    And then there's the tax incentive. When the dollar amounts are more significant and an aircraft is used in business—the possibility of a tax deduction of 100% of the cost of the aircraft does exist, based on the current tax law in place.

    To be fair, getting to 100% is really difficult and the inherent landmines are many. At AOPA Aviation Finance, we strongly advise anybody pursuing that goal to talk to their tax experts before attempting such a course of action. I should also point out that the latest regulations that came through in 2017 closed some significant aviation-related loopholes. For instance, capital gains deferment into another aircraft purchase is no longer a legal option. A discussion with your accountant on how you’re going to manage your tax liability is a must. When you do go to sell, there will be capital gains tax implications. 

    Bottom line: If you own a well-maintained, older jet and it's fresh out of maintenance, now's the best time to consider selling it. ETP is low and demand is high.

    This article was originally published by AOPA Aviation Finance Company on November 18, 2019.

  • Tracey Cheek posted an article
    If It Seems Too Good To Be True... see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, shares what's important when financing your aircraft. 

    Thanks to recent, historically low interest rates, AOPA Aviation Finance (“AAF”) has been approached more and more frequently with similar versions of the same story. It goes like this: Somebody they know got a fantastic offer with a phenomenal rate--like 2.9%--on their latest airplane acquisition. Then they want to know if they can get the same deal. When we tell them the reality of that happening is extremely slim, disappointment is always the resulting sentiment. 

    Here’s why deals like that just don’t happen. A bank must make money on the loans it services, otherwise it fails. It costs banks money to acquire the money they loan to customers. The rate they pay for that money is called the “cost of funds.” For example, they might buy a five-year note from the Treasury at 1.66%. That is their cost of funds. The difference between the lending rate charged to their customers and a bank’s cost of funds is the “net interest margin.”

    That net interest margin is a bank’s primary income stream. All expenses, from salaries to rent to utilities, etc. are debited from that net interest margin. Those healthy reserves banks must maintain to cover losses from bad loans also come out of that same source. Even though the cost of funds for each bank is unique to their circumstances, that figure is typically based upon a universally-recognized benchmark like the overall yield curve of the US Treasuries.

    For illustrative purposes, let’s say the bank bought five-year Treasury notes @ 1.66%. Their cost of business is 166 basis points. Typically, banks tend to start lending at 200 basis points above their cost of business. Let’s face it, that starting point is for a bank’s best customers—folks with cash collateral, amazing credit, are well-known to the bank, etc. Doing the math, 200 basis points above a 1.66% cost of business equals 366, or 3.66%, so….

    For a bank to offer a client a 2.9% interest rate, or 290 basis points, on an aircraft loan, given the above example would mean the bank would have to be willing to reduce its net interest margin from 200 basis points to only 124. What would possess a bank structure such a “skinny deal?” After all, as one of my graduate school finance professors used to repeat incessantly, “There’s no free lunch.” 

    A deep-pocketed client who is very familiar to the lending bank and whose investments are already being fee-managed by that bank could be one reason a bank might make an exception to the rule. AOPA Aviation Finance recently brokered a super mid cabin, new aircraft deal valued at over 20 million dollars. The borrower had an existing relationship with a bank where AAF had an existing relationship with its aircraft group. The bank wasn't aware that our client was looking to purchase an aircraft, and the client wasn’t aware his bank had an aircraft financing group.

    Because we had relationships with both, we were able to articulate the reasons for keeping the deal in-house. The bank was already very familiar with the client and his financials; the bank’s aviation group had done several deals of this size and type before; the client’s substantial financial holdings with the bank allowed the bank to stipulate, and the borrower to agree to, using his accounts as collateral for the loan. 

    Banks love to leverage liquid assets over the airplane. It’s much easier to reach into an account to make oneself whole if a loan goes bad than it is to sell an aircraft, no matter how popular the model. And not insignificantly, pointing out that allowing another bank to finance the aircraft would open the door to that other financial institution potentially enticing the client (and their money) away, helped motivate our client getting, far and away, the most competitive rate and best structure possible.

    Still, that’s a very rare, real world example. That said, AOPA Aviation Finance may find great deals for folks who’ve got investments with certain lenders. At the end of the day, whether your financial situation is typical or “unicorn,” our process will match you up with the best lender for your circumstances. 

    This article was originally published by AOPA Aviation Finance Company on December 10, 2019.

  • Tracey Cheek posted an article
    Aircraft Finance Specialists Joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE

    EDGEWATER, Md. – Feb. 3, 2020 – National Aircraft Finance Association (NAFA) is pleased to announce that Aircraft Finance Specialists has recently joined its professional network of aviation service providers. 

    “NAFA members form a network of aviation finance services who diligently and competently operate with integrity and objectivity throughout the world. We’re excited to welcome Aircraft Finance Specialists to our growing organization as we head to our 50th anniversary,” said Jim Blessing, president of NAFA.

    Aircraft Finance Specialists’ objective is to secure the best financing terms to fit their clients’ needs. The company provides financing solutions for corporate and personal acquisition or refinance of jets and turboprops. 

    With decades of banking experience, the team at Aircraft Finance Specialists uses their wide breadth of industry knowledge and their specialty focus to market client transactions to multiple financial institutions. 

    Much like NAFA, Aircraft Finance Specialists' is dedicated to the aviation industry – delivering high quality and specialized service to their clients. 

    "Aircraft Finance Specialists is proud to join NAFA to ensure our customers are on the leading edge of information as it relates to financing trends within the marketplace,” stated Jonathan Robinett, President of the company.

    For more information about Aircraft Finance Specialists, visit nafa.aero/companies/aircraft-finance-specialists.

    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 NAFA.aero.

  • Tracey Cheek posted an article
    Structuring a Deal - Aircraft Value is Fundamental see more

    NAFA member, Gary Crichlow, Director of Aviation Finance for Arc & Co., discusses aircraft value.

    One basic axiom drives the due diligence that aircraft financiers undertake, and informs the requirements they impose: Aircraft depreciate in value over time.

    While there are many definitions of “value,” the one that matters to a financier is the price a buyer would agree to if the financier ever had to sell. Whether as a scheduled plan to take the aircraft back at the end of an operating lease, or as a contingency plan to sell due to a repossession, financiers need a strategy for actually turning a highly engineered piece of metal into enough cash to cover their outstanding exposure. 

    To do this, financiers typically employ three tactics: 

    1.  Avoid 100% Reliance On the Aircraft Value – Aircraft values can be volatile, and most financiers hedge their bets by looking to the client’s creditworthiness for security, as well as recourse to a guarantee and/or additional collateral.

    Making This Work for You: Generally, the more a lender can take security in your creditworthiness and guarantee rather than the asset value, the less expensive they’ll be. The keys are understanding what security you can offer in exchange for a financing package, and finding the financier that suits you accordingly. 

    2.  Conserve the Value Position – Financiers look to minimize the amount of cash they’d have to realize from a sale by capping the amount they’ll advance, amortizing the balance as aggressively as they can, and imposing a loan-to-value covenant — a mechanism giving the financier the right to call for additional pay-downs to keep the outstanding principal below a certain percentage of the aircraft’s value. While these tactics are relatively simple to understand, in practice, a financier’s ability to actually implement them depends greatly on the competitiveness of the market. Back in 2008, a frenzied market saw interest-only deals (zero amortization) and 100% advances; today, advances average in the 70-80% range, with 90%+ deals only in the most competitive areas of the market (e.g. the U.S. domestic market, and the global market for the uppermost-tier clients).

    Making This Work for You: A financier’s flexibility on the terms they offer – and enforce – will depend on how much competition there is for your business. It’s always a good idea to seek alternative offers and compare terms.

    3.  Protect the Aircraft’s Value – Financiers insist on measures that protect the asset’s value, and – just as importantly – their access to it. Since aircraft are depreciating assets, once a financier takes control of it (whether as a repossession or a scheduled off-lease handback) it’s basically a race against time to realize as much value from it as they can.  

    This is why they tend to require enrollment in hourly maintenance support programs; restrict the choice of governing law, aircraft registration, and operator to jurisdictions and entities with whom they’re comfortable; expect regular usage reports; and require periodic audits of the aircraft and operator. They also will insist on a tripartite agreement: a contract between them, you, and the operator that binds the operator to deliver the aircraft and records to the financier if there’s a default. These measures are intended to keep the aircraft marketable, provide the financier advance warning of trouble and, if necessary, recover the aircraft quickly.

    Making This Work for You: Consider that the same measures which protect an aircraft’s value also protect its safe and high-quality operation. It all comes down to looking after the aircraft: controlling the aircraft’s usage and upkeep by well-trained, well-resourced, diligent personnel. The financier wants to be assured of a well-looked-after aircraft. And a well-looked-after aircraft is what you want to be flying. 

    This article was originally published by Business Aviation Advisor on January 1, 2020.

  • Tracey Cheek posted an article
    Deposits see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses when a deposit is required and why during your aircraft deal.

    Typically, larger airplane transactions require deposits, specifically, deals of a million dollars or more. Why do lenders ask for a deposit? As the old saying goes, “Trust, but verify.” 

    Larger transactions tend to involve assessing more sophisticated, more complicated financials. Often multiple legal entities may be involved. Each of the entities need to be reviewed, requiring substantially more due diligence. The additional due diligence accrues additional costs in the form of time, resources, third-party background checks, and other checks and searches. All of those things equate to unavoidable upfront costs. 

    Understandably, a lender is loath to go out of pocket on a transaction after putting forth so much effort. It’s not enough to trust that a borrower is committed to the deal. A deposit verifies that commitment. The size of the deposit depends on the selling price. It’s usually proportional, ranging from a couple thousand dollars up to one percent of what’s been negotiated. 

    It’s always prudent to expect to submit a deposit, even when the topic isn’t initially mentioned. Deposit discussions generally occur after a term sheet--a broad estimate of structure-- is drawn up and then agreed to by both parties. Only once the borrower agrees to the terms and conditions and decides to move forward should a deposit discussion take place. Anything sooner should fire off alarm bells.

    If your transaction requires a deposit, we cannot overstate the importance of dealing with a trusted financial institution or escrow company If in doubt, give AOPA Aviation Finance a call. We work with trusted escrow agents all the time. We will help you find one with which both parties to your transaction can feel comfortable. 

    If you’re working through a bank, our position is that institution is an appropriate place to hold the deposit. If you’re not working with a bank, we strongly recommend an escrow agent to handle that duty. In past articles, I referenced using third-party escrow services to hold the deposit. That’s because there are occasions when it is better to have an escrow agent bear the burden. A broker or a private party seller are examples of entities which are not highly regulated, if at all. As such they don’t have as much exposure to liability and are proportionally more difficult to extract compensation from should the deal go awry, compared to highly regulated banks. 

    Escrow companies tend to carry errors and omissions insurance, and many of the good ones are also bonded. Neither of those assurances match the accountability found in banking regulations, though. With your deposit at a bank, regulators and regulations back you in the event the deal goes sideways.

    Enlisting the services of someone trusted like AOPA Aviation Finance will ensure whomever you work with is properly vetted, and that you are working with reputable folks. Regardless of whom you add to your team to work on the deal, important questions to ask and get answered before putting down a deposit include, “Are you bonded? What errors and omissions insurance do you have? Do you have references from satisfied customers? Have you ever been sued?”

    This article was originally published by AOPA Finance on December 10, 2019.

  • Tracey Cheek posted an article
    The Aircraft Buyer’s Guide to Private Jet Financing see more

    NAFA member, H. Lee Rohde, III, founder, President and CEO of Essex Aviation Group, Inc., shares tips on private jet financing.

    Even for high-net-worth individuals, whether to purchase a private aircraft might rank as one of the most expensive — and, potentially, lifestyle-changing — decisions they’ll ever make. From upfront costs to the ongoing costs of maintenance, hangarage and direct operating costs, private aircraft ownership requires a significant capital investment but, for those who frequently fly for business or personal reasons, it provides unparalleled travel experiences.

    The fact of the matter is that the comfort, convenience, luxury and freedom that private aviation offers would be compelling to just about anyone and considered well worth the cost by those who can afford it — so let’s talk about the options to best structure it through private jet financing.

    Let’s Talk Costs

    Before a buyer kickstarts their search for a private aviation lender, they’ll first want to thoroughly consider the costs of purchasing a private jet. Conservative estimates place the cost of a brand-new private jet between $7 million and $75 million, while the most expensive private aircraft in the world — those of commercial size but modified for private use — cost well above that range.

    For those buyers hoping to minimize their capital investment in an aircraft, acquiring a pre-owned aircraft can offer many of the same benefits as a new model with a reduced capital cost. However, for the following new aircraft, current industry data included in the VREF Aircraft Value Reference Guide offers some perspective on pricing and just how expansive the private jet financing industry is.

     

    Aircraft Manufacturer Model & Retail Price in Millions
    Bombardier • Lear 75: $13.8m
    • Challenger 650: $32.4m
    • Global 5000: $50.4m
    • Global 6000: $62.3m
    • Global 7500: $72.8m
    Cessna • Citation M2: $5m
    • Citation CJ3+: $8.6m
    • Citation CJ4: $9.6m
    • Citation XLS+: $13.6m
    • Citation Latitude: $17.3m
    • Citation Sovereign 680+: $18.8m
    Embraer • Phenom 100 EV: $4.5m
    • Phenom 300: $9m
    • Legacy 450: $16.6m
    • Praetor 500: $17m
    • Praetor 600: $21m
    • Legacy 650E: $26m
    • Lineage: $50m
    Dassault • Falcon 2000S: $30m
    • Falcon 2000LXS: $35.1m
    • Falcon 900LX: $44.8m
    • Falcon 7X: $53.8m
    • Falcon 8X: $59.3m
    Gulfstream • G500: $46.5m
    • G600: $57.9m
    • G650: $69.5m
    Pilatus • PC-24: $9.5m

    Choosing the Right Lender

    The road to private aircraft ownership should begin with the decision to retain the services of an aviation consultant or a jet financing broker. It is the responsibility of an aviation consultant to understand the buyer’s needs and situation to direct them to an appropriate tax attorney and, ultimately viable lenders and financing structures. Once the consultant has completed these steps, the process of researching lenders, requesting and reviewing lender proposals and working with the client or the client’s team is fairly straightforward. A consultant’s primary contribution is to apply their knowledge and considerable network of industry connections to facilitate the financing solution that best serves the client’s unique needs and requirements.

    High-net-worth individuals often partner with aviation consultants and finance brokers through their private wealth advisors or in-house finance team in order to identify the best options available. Clients in different segments of the market who might not have the same level of in-house financing staff to support their needs can also benefit from assembling a team of third-party experts within the private aviation industry. Whether they’re working with an in-house finance team, a third-party private aviation consultant or an aircraft finance broker to evaluate lenders, buyers have three private jet financing options from which to choose:

    1. Traditional Banks: For most buyers, utilizing their current bank can be the most efficient choice for jet financing due to their existing relationship. The bank already has a complete portfolio of the buyer’s finances, which can make the loan process that much more efficient.
    2. Banks With Aircraft Finance Groups: In the event that a buyer’s current bank cannot provide jet financing, it may still be able to use its industry connections to put the buyer in touch with a different bank that has a dedicated aircraft finance group. These institutions specifically have a vested interest in private jet financing and already manage a large aircraft portfolio and would therefore be more inclined to offer private jet financing to a buyer without an existing relationship.
    3. Private Lending Groups: This type of lender is able to provide private jet financing by raising capital within equity markets to support their portfolio growth. Though private aircraft lenders are less common than their traditional banking counterparts, they are a viable option for buyers who, for whatever reason, wish to avoid securing a loan with their primary bank or a traditional bank. Buyers who choose to pursue this private jet financing option are still advised to work with a private aviation consultant and tax attorney to confirm the lender’s position in the market and whether it’s a suitable option for the buyer in question.

    Criteria for Private Jet Financing Evaluation

    It is, understandably, in a lender’s best interest to be highly discerning about who it grants private jet financing to and how much it lends. Therefore, similar to home mortgage lenders, private aircraft lenders have strict criteria for evaluating potential borrowers, as well as additional portfolio parameters based on the age and models of aircraft they’re able to finance.

    For buyers who want a better understanding of this criteria, look no further than the “5 Cs” of credit: character, capital, capacity, collateral and conditions.

    • Character refers to the borrower’s reputation and the stability of their credit.
    • Capital refers to the borrower’s net worth and the types of capital assets they currently own.
    • Capacity refers to the borrower’s ability to pay on the loan, as well as their current debt-to-income ratio.
    • Collateral refers to the assets that the borrower is able to pledge to secure the loan.
    • And, finally, conditions refer to how the borrower intends to use the aircraft, as well as external factors such as pending legislation that could affect the loan and the current state of the economy.

    Buyers should be aware that most lenders have specific loan covenants, and that their lender of choice might require periodic reviews of the aircraft’s market value and also organize third-party inspections to determine whether the aircraft is being kept in the proper condition.

    Alternatives to Private Jet Ownership

    For individuals who want to replicate the experience of owning their own aircraft without having to worry about securing private jet financing, there are multiple alternatives to outright ownership:

    • Private Jet Lease: The individual leases an aircraft from the owner for a specified period of time and assumes full operational control — similar to direct ownership — without transferring the aircraft title. Private jet leasing offers similar operational benefits, which can make it a viable option for buyers who are not able to take advantage of the tax benefits that direct ownership can provide. In some cases, however, private jet leasing agreements preclude the lessee from using the aircraft for third-party charter (FAR Part 135).
    • Fractional Aircraft Ownership: The individual invests in partial ownership by purchasing a share of a specific aircraft type and agrees to an annual amount of flight hours depending on their specific travel needs. Fractional ownership often comes with significant upfront acquisition and monthly operational costs, but fractional owners save on deadhead costs.
    • Private Jet Membership: The individual agrees to a fixed cost per hour at the start of the contract and is billed after each flight. Members are also expected to pay monthly management or annual membership fees.
    • Jet Card Program: The individual either agrees to a predetermined number of hours on a specific aircraft type or size category (dedicated service) or funds an established travel account and chooses the aircraft category on a trip-by-trip basis, after which the cost of trip is calculated and deducted from the account’s balance (debit card service).
    • Private Jet Charter: The individual charters — that is, rents — an aircraft for each specific trip they wish to take. Private jet chartering can be well-suited for individuals with relatively low annual travel requirements, but who fly to areas that cannot be easily reached by scheduled airline service.

    A Final Note

    Buyers interested in purchasing a private jet should assemble a team of professionals to assist them at every step of the process. From sorting out aircraft-specific tax considerationsto hiring an aircraft management company to handle day-to-day operations and support once the purchase is complete, buyers will want to have qualified and capable industry experts on their side — starting with a private aviation consultant.

    At Essex Aviation, we have a combined 70 years of aviation experience; in that time, we’ve had the opportunity to learn the ins and outs of the private aviation industry, as well as develop strong relationships with service providers and other vendors. We’re able to leverage this knowledge and our vast network of industry connections in order to ensure that our clients’ unique private aviation requirements are met with unbiased guidance and that they have a quality client experience, from start to finish.

    This article was originally published by Essex Aviation Group, Inc.

  • Tracey Cheek posted an article
    How to Build a Business Aircraft Acquisition Plan see more

    NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses the importance of developing a thorough aircraft acquisition plan.

    With a sense of urgency and a large sum of cash, an aircraft acquisition can be completed rather quickly. However, without a plan or the right team in place, these types of scrambles typically result in the wrong aircraft for the job, or just simply picking the wrong aircraft. To avoid the headache from an impulse purchase, you need to build a business aircraft acquisition plan.

    To begin, there are two fundamental reasons for acquiring new or different aircraft:

    1. The current aircraft can no longer perform the mission, or
    2. The current aircraft is no longer the most cost-effective solution.

    Changes in mission need to be quantified. As an example, one client in the Eastern US started flying shorter trips with fewer people. Their eight-passenger jet, with a 1,800nm range, was more than they needed.

    Instead, they found that a five-passenger airplane that’s more efficient on short trips might be the next aircraft for them.

    But how can you quantify what it is that you need and want? Economics are critical. The cost of an aircraft is more than the acquisition price alone. It encompasses the total costs needed to operate the aircraft and allow for a future residual value.

    As an example, a single aircraft that meets 98% of usage requirements may cost far more than an aircraft that meets 85% of your needs with a supplemental jet card, charter or fractional solution in place for the remaining 15%.

    What Should Your Acquisition Plan Include?

    It is important for you to understand what it costs to own and operate the aircraft – and this will all come into your acquisition plan. So, what should your acquisition plan include?

    An aircraft acquisition plan must (at a minimum):

    • Identify, quantify and differentiate your needs and wants;
    • Identify and rank the possible aircraft types by mission capability; and
    • Analyze all the costs involved with the aircraft.

    Your plan should be void of emotional issues and stay as far from subjective criteria as possible. To help in this respect, you will need someone who can ask the tough questions and assist with an unbiased analysis of the candidate aircraft.

    Consultants may offer the unbiased review that you initially need, and their feedback will need to cover both technical and financial aspects of the aircraft acquisition.

    Who Should be on Your Acquisition Team?

    As you proceed with the acquisition you need to add expertise across several fields to your team. Tax planning should begin well before the purchase, not after the closing, meaning that you will need to hire someone familiar with taxes as they apply to aviation.

    You will also need to consult a qualified aviation attorney to ensure that the contracts are appropriate and that the various regulatory issues are addressed. A document that looks good from a basic business perspective may not be legal in the eyes of the FAA or other aviation authority.

    Don't overlook the insurance broker, who will need to be kept informed as to when and how the aircraft is to be used. (For example, if the aircraft is to be placed on a management agreement, who and how are each of the parties to that agreement going to be covered?)

    You will also need an aircraft sales professional, who will ideally have an excellent understanding of the aircraft sales market — what the availability is; lead times for various models; who to contact about pre-buy inspections and appraisals; and how long it could take to dispose of your current aircraft.

    Moreover, the aircraft sales professional you hire will need all the qualities required to be an excellent facilitator, since their job will also be to make sure the deal closes and that all parties are happy.

    Additional Planning When Buying New…

    Moreover, if you are buying a new aircraft, specifying all the options, picking out paint, and choosing an interior may take a minimum of six months and may well require the services of additional advisors.

    In Summary…

    Think of your business aircraft acquisition as a “time-is-money” deal. That is, if you don’t have much time, you’ll probably spend even more money! If you are looking to close a deal by the end of this year, you need to be looking seriously right now, and investing in all of the right areas to ensure your acquisition plan results in the right aircraft, at the right cost, at the right time.

    This article was originally published by AvBuyer on October 25, 2019.

  • Tracey Cheek posted an article
    Choosing an aircraft from a financier's perspective see more

    NAFA member, Gary Crichlow, with Arc & Co. Aviation Finance, discusses points to consider when choosing an aircraft from a financier's perspective.

    In previous articles as part of our Aviation Insight series, we’ve explored the major benefits of availing yourself of aircraft finance: it preserves your cash flow, allowing you to redeploy capital away from a depreciating asset back into your business, or into investments that earn a return. 

    We’ve also looked at the financier’s motivations to extend finance: they need to demonstrate that they can generate an acceptable risk/return balance on the funds they commit against aircraft, in order to protect and enhance their license to operate. 

    With this in mind, we’ll now look at points to consider when choosing an aircraft from a finance-ability point of view. The more strongly these points inform your choice, the more likely it is that you’ll be in a position to secure the benefits of aviation finance without too many of the hurdles.

    1.     Aircraft suitability – financiers like to work with clients that can demonstrate experience and familiarity with the cost of owning or operating an aircraft. Ideal clients will evidence that they either have, or have solicited, the expertise to select an aircraft with a capability that fits their usage needs. The client will have budgeted realistic fixed and variable costs covering insurance, crew, scheduled and unscheduled maintenance, fuel, handling, etc; and can demonstrate the financial wherewithal to comfortably cover those costs.

    2.    Aircraft age– the overwhelming rule of thumb is that the younger the aircraft, the more readily financeable. There’s absolutely nothing wrong with well-maintained older aircraft, and there is a pool of financiers willing to lend against them for the right client; but generally speaking, younger aircraft in the 0-7 year old range are the easiest to finance competitively. 

    3.    Aircraft value – larger deals are generally more attractive. As with older aircraft, there is always finance available for smaller lends (below $5 million) for the right client, but there is a smaller pool to choose from, especially if other aspects of the deal are not straightforward. 

    4.    Aircraft market position – it’s easier to find finance for “liquid” aircraft: types that have a large customer base, are in well-established production and conform to “standard” in terms of capability, configuration and appearance. Financiers are generally more willing to lend money against an asset that they believe would be relatively easy to remarket if they had to. 

    5.    Aircraft maintenance programmes– practically every financier will require that at the very least, the engines be fully enrolled on an hourly maintenance support programme, offered by the manufacturer or by a reputable third-party such as JSSI.

    6.    Aircraft operator– the financier will generally want to be satisfied that the operator is competent, properly certified, reputable and fully independent of the client. You can generally expect a tripartite agreement will be required between the financier, the operator and the client. The purpose of this agreement is to enable the financier, in the event of a default, to have the operator secure the aircraft.

    7.    Aircraft due diligence– the financier will want to satisfy themselves that the aircraft condition is fully explored. For pre-owned aircraft this generally means an in-depth inspection that looks for things like records entries that are missing or not in English, damage history, corrosion, accidents & incidents, etc – the exact same issues that your technical expert should be alerting to you as a prospective buyer.

    8.     Aircraft regulatory compliance– your technical expert should advise on what is required for your usage in terms of, for example, avionics capability e.g. ADS-B, FANS-1/1A compliance (if you don’t understand that jargon, make sure you have a technical expert who does!). Bear in mind that a financier will generally want to see that it is compliant on a global (or at least a US or European) basis, and this includes looking ahead for scheduled upgrades or expected developments over the term of the financing.  

    What it boils down to is this: when evaluating an aircraft finance opportunity, lenders need to do their homework when it comes to the aircraft, and a key part of that is ensuring that you’ve done your homework too. Your interests, and the financier’s, are aligned: you both want comfort that the aircraft you’ve chosen is as it should be.

    This article was originally published by Arc & Co. Aviation Finance on July 15, 2019.