aircraft finance

  • Tracey Cheek posted an article
    Buying a Foreign Aircraft and Importing It see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares what you need to know when purchasing and importing a foreign aircraft.

    Buying an aircraft is a complex transaction. Buying one from outside the United States and importing it only adds to the complexity. Paperwork and timing are two major aspects of a domestic deal that can become complicated with foreign transactions and the importation process.

    For instance, in the United States there’s only one place to go to verify aircraft records--the Federal Aviation Administration (FAA). Assuming an aircraft has spent its entire history in the United States, most reputable title companies should be able to ferret out any claims impacting the title by performing a quick title search.

    By contrast, in Canada, for example, there is no central source for determining an aircraft’s chain of ownership. Aircraft registration in that country is done at the regional level. There are many different provincial and territorial level queries that would need to be done to ascertain whether there are any claims outstanding on Canadian-owned aircraft.

    Every country has its own, distinct registration process. Unfamiliarity with a country's aircraft registration procedures can significantly impede the timing of the transaction and increase the paperwork. It should be mentioned that the International Registry (IR) was originally intended to help address this issue. However, the IR falls significantly short in providing certainty of a clear chain of title, even on those aircraft it covers.

    Aircraft pre-purchase inspection is another potential minefield. AOPA Finance recently stepped in to help somebody who had imported a plane without setting up a thorough Purchase and Sale Agreement (P&S). The two parties agreed the seller would fly the plane to the United States. Both also agreed the buyer could have an annual inspection performed by the buyer’s A&P as part of the pre-purchase inspection. During the annual, the buyer’s mechanic discovered several issues with the aircraft.

    A dispute arose over which country’s definition of airworthiness took precedence. The seller believed the aircraft was airworthy when it departed his country. The buyer’s mechanic begged to differ. So both the plane and the deal were in pieces. To add insult to lack of planning, the lender refused to release funds until somebody signed off that the aircraft was airworthy.

    In the United States, that somebody is the FAA’s designated airworthiness representative (DAR). Not only does the DAR control that aspect of the transaction, this person also oversees the de-registration and registration process. Every country also has their equivalent, which means there are options on how to proceed. Whichever course is chosen, it involves getting on the DAR's calendar, and paperwork.

    Other details to be resolved include: In which country will the plane be de-registered? How will it be flown or ferried into the United States? Where and how will it clear U.S. Customs? And how will the aircraft be re-registered?

    Our advice is to hammer out a rock-solid purchase and sales agreement before embarking on your journey. Clearly spell out all the details to make sure expectations are realistic. Have the P&S elaborate what’s going to happen, when and who is going to take care of which parts of the process. Have it specified when the money will become non-refundable, when the entire amount of the loan is funded into escrow, and when those funds will be released to the seller.

    Disputes happen. Lay out what the dispute resolution process will be. Clarify the logistics of when and where the aircraft will be de-registered and subsequently re-registered. Specify the time period for the designated airworthiness representative to inspect and deem the aircraft airworthy by U.S. standards.

    Our other piece of advice is to get title insurance. It doesn’t cost a lot on the one hand, and on the other hand, having a U.S.-based title insurance company to defend you if something does occur is more than worth the cost. Don’t skimp on this item. Get title insurance.

    AOPA has a plethora of online resources. We also can be helpful through our Legal Services Plan. We’re not the only ones. There is a small industry of other aviation professional service providers out there who are in the business of importing aircraft. Our goal is to provide an understanding of the process and help set expectations. Buying a foreign aircraft and importing it is absolutely a case where hiring professional service providers can only benefit you.

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

  • Tracey Cheek posted an article
    How Can Borrowing More Cost Less? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, explains the credit matrix when looking for an aircraft loan.

    An AOPA Finance client recently requested a quote for financing a single-engine aircraft. He was looking to finance $70,000, and was quoted what the interest rate would be based on that figure. However, had the client borrowed $75,000 instead of $70,000, the rate would have been a whole percentage point lower, saving him money. Why is that?

    Many borrowers believe the way to get the best interest rate is through a large down payment and a great credit score. But actually the No. 1 factor in determining the interest rate offered on a loan is the amount of money being lent. Lenders structure each loan around a credit matrix. The matrix is comprised--among other things--of ranges of loan amounts, the loan-to-value (LTV) ratio, an individual's total financial picture, and least of all, that person's credit score.

    Lenders group loans into "buckets," or ranges of loan amounts. For example, in the case of our client, one range included loan amounts from $50,000 to $74,999. Additionally, each range of loans has a default initial interest rate associated with it.

    In this case, the lender's next higher range had an interest rate one full percentage point lower associated with it. This client had said a top priority of his was to get the lowest possible interest rate. Therefore, we knew if our client had the flexibility to increase his loan by $5,000, it would put him in the higher range, where the default lending rate was better.

    Initially, he saw increasing the loan by $5,000 as beneficial only for the lender. We pointed out that this lender also had a loan structure that allowed for additional prepayments without penalty. If our client was willing to hold back $5,000 of his down payment and increase the loan to $75,000, he could, on Day 2 of the loan, take that held back $5,000 and apply it immediately to the principal. That would get him back to $70,000 on the loan while maintaining the lower interest rate of the $75,000 loan, thus saving him money. That’s one example of how borrowing more can cost less.

    Loan-to-value (LTV) is the second-most important element in constructing the credit matrix. LTV is a financial term used by lenders to express the ratio of a loan to the value of the asset purchased. Generally, an LTV of 80%-85% is deemed an acceptable risk. LTV requirements are most frequently influenced by the aircraft and how quickly it is likely to depreciate. In other words, LTV requirements may be applied on a sliding scale. Generally, the more quickly a plane is likely to depreciate, the more money down or lower an acceptable LTV and vice versa. Additionally, by putting even more money down and thus lowering the LTV you can frequently gain better interest rates and terms.

    The last, and least important, component of the credit matrix is one's credit score. Despite what retail financial institutions and credit reporting agencies pushing credit protection products advertise in the media, credit scores for aircraft loans have only a small influence on how lenders determine a loan's interest rate. The difference between a good credit score and a great credit score might be a mere quarter of a percent. It’s a lousy credit score that will hurt the most. A poor credit score may cost the borrower a full percentage point, or the loan itself.

    Ultimately, obtaining the best loan for you is about providing you the best perspective on all aspects of it. AOPA Finance brokers stand ready to share the kind of knowledge, nuance and expertise that can navigate you to the best loan for your situation.

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

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

    FOR IMMEDIATE RELEASE

     

    FORT LAUDERDALE, Fla. – November 4, 2019 – National Aircraft Finance Association (NAFA) is pleased to announce that NBT Bank recently joined its professional network of aviation lenders. 

    “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 NBT Bank to our growing organization as we head to our 50th anniversary,” said Jim Blessing, President of NAFA.

    NBT Bank offers personal and business banking, commercial banking and wealth management services from locations in seven states, including New York, Pennsylvania, Vermont, Massachusetts, New Hampshire, Maine and Connecticut and through its online and mobile channels. The bank added small aircraft financing to its array of lending options in 2019 and hired Douglas N. Place, Jr. as vice president of Aircraft Financing to lead their efforts. Place has nearly 15 years of experience in the financial services industry, including 10 years in aviation financing. He is also a private pilot and a member of the Board of Directors for the Greater Lawrence, MA Airport Authority.

    “NBT Bank is dedicated to building strong relationships and delivering high-quality service to our customers,” said Place. “I am proud to be a part of the NBT team and to deliver small aircraft financing as an enhancement to the bank’s business options. We’re very excited to join NAFA and foster long-term, mutually-beneficial relationships throughout the aviation finance community.”

    Established in 1856, NBT Bank is headquartered in Norwich, NY with its parent company, NBT Bancorp Inc. NBT Bancorp Inc. had assets of $9.7 billion as of September 30, 2019 and is traded on the Nasdaq Global Select Market under the symbol NBTB.

    NBT Bank appeared on the Forbes 2019 World’s Best Banks list as the top-ranked bank in Maine,  New Hampshire, New York and Vermont. Of the 60 U.S. banks on the list, NBT Bank was ranked #14. Forbes surveyed more than 40,000 customers around the globe and rated banks on overall recommendation and satisfaction as well as five subdimensions (trust, terms and conditions, customer services, digital services and financial advice).

    For more information about NBT Bank, visit nafa.aero/companies/nbt-bank.

    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
    Will High Time Engines Complicate the Loan Process? see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, discusses finding the "perfect airplane" and the loan process.

    You’ve finally found the perfect airplane. It has no damage history, all of its logs, great avionics, and good interior. The high time engines are the only downside. You’re not worried because the plane is flown often and mechanically is in great shape. When you present it to your lender, though, the lender balks. Why?

    Lenders tend to keep the worst-case scenario in mind. For them, that case is if they might have to repossess the aircraft with it needing an overhaul. To make it marketable again, the lender would have to use their own money for an overhaul. To counter that, most lenders are going to specify you have enough liquidity to cover an overhaul from Day 1.

    Some lenders may require an overhaul as part of the purchase. Others may require a "hold back" amount of money as a precursor to financing. That "hold back" amount must be sufficient to cover overhaul costs upon taking delivery. Because lenders recognize that the likelihood of other expenses popping up at any time with an airplane is high, they may also require an additional cushion of liquidity as a condition of completing the deal. Some lenders will simply bow out of the transaction entirely.

    For many pilots, having to fold an overhaul into the purchase price looks like a pricing discount opportunity. The reality is aviation market appraisers have already figured that into the equation. For example, if two identical aircraft are for sale and one has a fresh overhaul while the other is at TBO, the airplane with the fresh engines will have a market value of at least $30,000 more per engine over the TBO plane. 

    We've had clients who felt their ability to potentially liquidate an asset to cover an overhaul should have had that counted in their favor. Lenders tend to disagree with that assessment for two reasons. First, offering to liquidate an asset against an overhaul changes the global financial picture of the borrower. Keeping in mind that every aspect of one's financial picture is interconnected; it becomes easy to see why changing one part may have a negative domino effect overall.

    Second, where borrowers tend to feel eternally confident about their ability to quickly liquidate any asset they own, lenders are more sanguine about the reality of asset disposal. Financers can draw from plenty of historical precedent where circumstances changed for the worse, and the asset a borrower thought would be easy to sell to cover the unforeseen event fetched far less than expected or didn't sell at all. 

    The flip side of that coin are two specific instances where an airplane owner whose engines are at TBO might easily obtain an overhaul loan. In the case of an aircraft that is free and clear, it’s generally possible to get virtually 100% financing. The second situation is when a loan is still outstanding. If the amount requested--plus the remaining principal--adds up to less than 80% loan-to-value (LTV), a lender will typically refinance. In that case, the owner may not have to go more than 20% out of pocket to pay for the overhaul. 

    Lenders who provide this type of refinancing find it attractive for another reason. Often a pilot will include an avionics or interior upgrade, thus turning a simple engine overhaul into a whole aircraft refurbishment. The one caveat is, at least on the piston side, the relatively small dollar amount of a refinance loan for an overhaul is low, so it's not necessarily attractive to a lot of lenders.

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

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

    FOR IMMEDIATE RELEASE

    EDGEWATER, Md. – 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

    EDGEWATER, Md. - 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
    JSSI Advisory Services Joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE

    EDGEWATER, Md.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
    The History Behind the International Registry see more

    NAFA member, Aircraft Guaranty Corporation, discusses the history of the International Registry. 

    The concept of multi-country international laws governing the financing of aircraft was the brainchild of Jeffrey Wool, who understood the global nature of airline financing and knew that more favorable international laws were needed to encourage investment in startup airlines. 

    Originally referred to as UNIDROIT, which is French for one law, he envisioned countries around the globe adopting a set of laws favorable to lenders that would encourage international financing of aircraft. 

    It would include a central international registry where rights and interests of international lenders would be registered in one place.

    The Concept of Global Financing

    Global financing for aircraft and airlines is of huge importance. You can read about this in ourblog, Why an Aircraft Should be Registered in Trust

    Starting a new airline is no small undertaking – with a long list of requirements needed to get a new airline off the ground, not the least of which is capital investment. Emerging markets are traditionally not affluent enough to provide start-ups with capital, so new airlines look to more prosperous economies for assistance. 

    The continuing increase in global air travel is overwhelming current supply chains, creating opportunities for new airlines to handle the demand. Start-ups around the world are adopting the low-cost carrier model, and opportunities to invest in these start-ups abound. Investors need to feel comfortable, however, with the business model of the airlines with which they are investing.

    Investors around the globe are more willing to invest in startup airlines if they can be assured that they have the right to repossess the assets of the new business if the burgeoning new airline doesn’t make it and can’t pay off their loan.

    The Cape Town Convention

    In response to this need, the Convention on International Interests in Mobile Equipment was held, creating a set of uniform laws to encourage the financing of aircraft, particularly for developing countries. The original convention was held on November 16, 2001 in Cape Town, South Africa, and has therefore become widely recognized as the Cape Town Convention. 

    Signing the treaty was only the first step, and only represented an intent to participate in the Convention. To fully participate in Cape Town, signatories to the Convention had to ratify the treaty. This meant that participating countries had to change or adopt certain laws to make them more favorable to lenders financing the airlines.

    To get Cape Town fully up and running, eight countries had to ratify the treaty. This took a while, so although the Convention was signed in 2001, not all of the provisions were fully up and running until March 1, 2006. 

    The original participating eight countries were Ethiopia, Ireland, Malaysia, Nigeria, Oman, Panama, Pakistan, and the United States. Today, the Convention has been signed by 77 different countries, and all but seven have fully ratified the treaty.

    So, What About the International Registry?

    The Cape Town Convention had a provision for creating an International Registry (IR), where the rights of all these international lenders could be filed for the world to see. The concept is much like the FAA, where all interests in the United States are filed in one place (Oklahoma City). 

    Unlike the FAA, however, the IR is an electronic-based registry that only gives notice of an international interest against an aircraft. In order to see the actual documents creating the interest, one must go beyond the IR to the country where the interest was created.

    The IR was originally designed to show only liens against aircraft. As the concept of the Convention grew, many people felt that ownership interests should be registered as well. Many wanted it to operate more like the FAA’s title-based registry, so that interested parties could get an understanding of the aircraft owner’s current identity, not just whether there were any liens against it. 

    Registration of Ownership Interests were therefore added to the scope of the treaty, and the IR now allows for notices of ownership interest called contract of sales.

    Is the International Registry in Cape Town, South Africa?

    While the treaty was signed in South Africa, the question of where to place the IR was a big one, and political. Many countries vied for the right to host the IR, but it came down to two main contenders: Canada and Ireland. 

    A lot of deliberation went into making the final decision, but in the end, Ireland was selected, and the IR was placed in Dublin where it is currently managed by a company named Aviareto.

    Now that we’ve given the history behind the Cape Town Convention and the creation of the International Registry, our clients may wonder about the need to register – please consult with Aircraft Guaranty Corporation to determine if you are eligible to register with the IR or not.

    This article was originally published by Aircraft Guaranty Corporation on August 28, 2019.

  • Tracey Cheek posted an article
    Closing Before the Aircraft is in the Delivery Condition - Exploring the Risks see more

    NAFA member Amanda Applegate, Partner with Aerlex Law Group, explores the risks associated with closing before the aircraft is ready. 

    More often than I would have thought possible, buyers and sellers are motivated by a variety of reasons to close on the purchase and sale of a pre-owned aircraft before the pre-purchase inspection is complete or before the inspection discrepancies are rectified. Sometimes it is because the buyer wants to close in order to start a major refurbishment to the aircraft and there is a long lead time on the correction of certain discrepancies and/or it would be more efficient to fix the discrepancies simultaneously with the refurbishment. Other times the seller wants the aircraft sold by a specific date for financial reasons, to make room for their newly acquired aircraft, or so the seller’s crew can leave for training on a replacement aircraft. Regardless of the reason, as a buyer there are certain risks that should be considered. 

    If the inspection isn’t complete at the time of closing, the risk to the buyer may be substantial because there could be unknown issues with the aircraft which haven’t yet been discovered. Additionally, if closing takes place while the discrepancies are in the process of being repaired then additional, significant discrepancies could be found, but the buyer no longer has the option to walk away from the purchase. 

    If the parties understand the risks and elect to move forward and close before the aircraft is in the contractually agreed-upon delivery condition, then there are two options. The parties can agree on a purchase price reduction based in part on the estimated cost to repair the discrepancies or the parties can agree on a holdback amount to be held by the escrow agent after closing, with those funds used to pay for the repair the outstanding discrepancies. 

    A reduction in purchase price allows the parties to complete the transaction and have no further dealings with one another. The price reduction should not only be for the amount of the outstanding discrepancies but should also include an amount that represents the risk that the buyer is assuming by accepting an aircraft which is not in the required delivery condition at closing. A short amendment should be drafted and signed by the parties which indicates the buyer is accepting the aircraft even though it does not meet the delivery conditions in exchange for the price reduction. The amount of risk being assumed under this option depends on the status of the inspection and/or the extent of the unrepaired discrepancies. One understated benefit of the price reduction over a holdback is that the transaction is completed, thus the seller has no further responsibilities and the buyer is free to do whatever they want with the aircraft going forward. 

    A holdback allows the seller to remain responsible after closing for paying the cost of the repairs necessary in order for the aircraft to meet the delivery conditions. If the holdback amendment is drafted properly, there is far less risk for the buyer under these circumstances. The buyer should make sure the seller remains responsible for not only the known discrepancies but any new discrepancies found during the completion of the repairs. Furthermore, the holdback amount should be enough so that collecting for the repairs from seller does not become an issue. I recommend the holdback amount be 150% of the estimated cost of the repairs. Additionally, the funds should be released automatically when the invoices are submitted to the escrow agent without further approval by the seller and if the holdback is not enough to cover the cost of the outstanding repairs, seller should remain liable. The escrow agent should be a party to the holdback amendment and they should confirm they understand the terms prior to execution. This will help avoid a dispute over when or how an invoice is paid. The parties will continue to work together until the repairs are complete and the remaining holdback amount, if any, is released to the seller. 

    There can be legitimate business reasons to close on a pre-owned aircraft prior to the aircraft meeting the delivery conditions as originally agreed upon between the parties. When the parties desire an early closing, it is important that the risk allocation is considered in the financial terms and that the agreement of the parties is clearly documented, including, if necessary, the post-closing obligations of the parties and the responsibilities of the escrow agent.

    Please contact Amanda Applegate at 310-392-5200 or aapplegate@aerlex.com.

    This article was originally published by Aerlex Law Group in BusinessAir Magazine on July 15, 2019.

  • Tracey Cheek posted an article
    An Overview of Aircraft Loan Structures see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, discusses how to determine which aircraft loan package is right for you.

    The best way for an AOPA Finance expert to determine the right loan package for its members is to ask them the right questions, starting with, “What’s important to you?”

    Most have the same answer: “The lowest interest rate possible.” From experience, we know they really mean “lowest rate possible for their specific situation”. Three questions help us frame their specific situation:

    1. What have you budgeted for a monthly payment?
    2. How long do you want to own this plane (and keep financing in place)?
    3. How much are you looking to put down?

    How the member answers determines whether a fixed, floating or a hybrid financing structure fits best. Their financial complexity might require us to recommend an asset-based approach.

    A fully amortized, fixed rate loan with the longest possible term might be ideal for somebody intending to own the plane for a decade or more. The risk is the interest rate locked in at the beginning of the term might be higher than the going interest rate at the end. But the trade-off in peace of mind knowing the guaranteed monthly note is compatible with one’s long-term spending plan makes the extra cost worthwhile. For example, for non-commercial use, there are lenders who will execute fully amortizing, fixed-rate loans with 15 or 20-year terms for turboprops still in production.

    When it comes to length of ownership, many of our clients answer, "about ten years.” Data AOPA Finance has collected shows the typical length of ownership is actually no more than five. That's why floating, balloon or adjustable rate (ARM) loan structuring might make more sense.

    A floating rate loan has no fixed interest rate, while an adjustable rate (ARM) loan starts out fixed but then changes (to either a new fixed rate or a floating rate). Following the initial period, an ARM floats, based on a benchmark reference rate like the Federal Home Loan Bank (FHLB). The initial period is typically three to five years. Another term for an ARM is hybrid. In the current interest rate environment and forecasting into the foreseeable future, these financing packages can offer better savings compared to fixed rates with similar amortizations.

    Balloons are another option; however, the amortization period is longer than the actual loan term. An example might be financing a turboprop on a five-year term with a "balloon" and a 15 to 20-year amortization. That package might work best for members who a.) are looking purely for the lowest rate possible, and b.) know they’re going to own the aircraft (and/or keep the loan) less time than the normal average.

    Balloons allow the borrower to delay paying the principal until the very end, thus keeping the monthly outlay low. At the end of the term, the entire unpaid balance comes due. That small monthly note balloons into one large final payment.

    Sometimes members come to us comfortable with the complex structures of floating or ARM financing, but the complexity of their own finances prohibits them from using those options. Take for example, a real estate entrepreneur who owns 30 different properties. Each property is a separate ownership entity. They have partners on some of these properties and are a majority owner, or half owner or some variation of percentage, across the entire real estate portfolio. Despite the positive cash flow, there are lenders who will not do a deal without them putting a guarantee on all the entities they have equity in, as well as a personal guarantee from themselves. Even if they aren’t restricted by covenants from doing so, the cost in money and time is frequently not worth it. The financial complexity surrounding their business might mandate a simpler, asset-based loan configuration.

    In fact, asset-based deals can be further simplified if the client can increase their down payment. The more you put down up front, the more options lenders have available. A loan on an older airplane or one with higher-time engines becomes doable if the borrower can afford a higher down payment. Whereas a newer plane might be approved with a 15% down, 20-year amortization, the same situation for an older turboprop might go from “no deal” to “deal” with 30% or 40% down. Likewise, a relatively mainstream turboprop that has been produced in significant numbers might normally see a 15-year amortization. Without a larger down payment, older or rarer turboprops might cause lenders to shorten the amortization period, or even refuse to make the loan.

    Jet financing has its own unique requirements which might also necessitate a higher down payment. That’s because the frequency of engine advancements and avionics upgrades as well as new products tend to render those aircraft obsolete faster than others. That’s why asking the right questions of our members allows AOPA Finance to give them the best picture when it comes to securing the best financing package for their unique situation.

    This article was originally published by AOPA Aviation Finance Company on April 12, 2019.

  • Tracey Cheek posted an article
    What's Included in Closing Costs? see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, answers some of your aircraft closing cost questions.

    Question: What is typically included in closing costs and how much should I expect them to be? Currently I’m looking to finance a Cessna 182 and want to determine the total costs of financing.

    Answer: Closing costs are the real costs incurred by the lender to document the loan. These typically include fees associated with preparing and mailing the loan documents, credit/background checks, and, in some cases, title and escrow. Most of our lenders’ closing costs run between $500-$800 for a C182. If the lender does not offer in house title and escrow, this would be additional fees. Title and escrow generally costs $600-$700 and is often split between the buyer and seller. 

    Closing can become complicated if you don’t know what to expect. Let AOPA Finance help you through the process. Give us a call at 800.627.5263.

    Question: I have been looking at several Bonanzas, but every time I start negotiations with the seller, they opt for cash buyers. Is there something I can do to get the financing in place before I negotiate the sale?

    Answer: If you have an age range and purchase price in mind, it would be recommended to get pre-approved. The pre-approval will take care of the credit underwriting so that when you find an aircraft you can confidently make an offer. Closing can be completed within a few days upon signing a purchase agreement if a pre-approval is already in place. Approvals are typically valid for 90 days with the rates locked for the first 30 days.

    If you are ready to get pre-approved, please call us at 800.627.5263 and we can send you an online application to get started.

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

    This article was originally published by AOPA Aviation Finance Company on March 29, 2019.

  • 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.