aircraft purchase

  • NAFA Administrator posted an article
    NAFA member, Adam Meredith, President of AOPA Finance, answers your aircraft purchase questions. see more

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

    Question:  I am a healthy 60 year old, retired student pilot with aspirations to purchase a used Cessna 182 for recreational travel after successfully passing my private pilot check ride. My intention at this point is to pay cash /not finance, but that decision is not based on considerations other than a personal aversion to debt. My expected budget for the purchase is $100-$175K, including any ancillary expenses associated with the purchase (inspections, taxes, fees, etc.) I am ignorant of the various considerations involved in choosing / buying an airplane and am curious about any services AOPA may offer to assist new pilots in purchasing their first airplane.

    Are there benefits to financing? Is there a “playbook” on buying an airplane that AOPA provides for its members? Is there a financial advantage to waiting, i.e., is the current market in used GA aircraft likely to soften into a “buyers market?” Is it typically more cost effective to acquire a low tech platform and update avionics or look for a plane with glass panel already installed? Other considerations not mentioned?

    Answer: The biggest benefit to financing is for folks with cash flow that want to preserve liquidity. Right now, especially, we are seeing people preserve capital either for investing in the market or for a safety margin if things start to get tight, cash flow-wise, down the road. In terms of a “play book”, we have a great resource page on our website for members trying to navigate the purchasing and financing process: https://finance.aopa.org/aviation-finance/first-time-buyers

    At this point, it seems unlikely for the used GA aircraft market to soften. Inventory levels of good 182s was limited prior to the COVID-19 outbreak. What we’ve seen since the COVID-19 outbreak is very few new listings of aircraft for sale, making it just as hard to find deals. Could it change down the road?  Possibly, but at the rate things are going it won’t likely be for a while longer. In terms of acquiring a low tech platform and updating the avionics vs. looking for an airplane with glass panel already installed, you are almost always better off (economically) buying an airplane someone else has done upgrades on. They put the money in but won’t get it back out. We always recommend that members get pre-approved so that when you find the airplane you like you’re not going to lose out to a cash buyer. Please reach out to us by calling 800.627.5263 so we can answer any other questions you may have.

    This article was originally published by AOPA Finance on May 29, 2020.

  • NAFA Administrator posted an article
    An Aircraft's Final Sale see more

    NAFA member, Amanda Applegate, Partner with Aerlex Law Group, discusses the process for the final sale of an aircraft.

    As more aircraft reach the end of their useful life, understanding the process for the final sale of an aircraft is becoming more important. If there are no buyers for an aircraft or if an aircraft is more valuable for its parts than as a whole unit, then the aircraft owner should endeavor to find the best possible solution for the aircraft’s final sale. Depending on the aircraft type and the parts inventory at the time, there may be multiple interested buyers for the parts of the aircraft. Once the best offer is found, a sale agreement should be drafted and include all of the necessary deal points. For the final sale of an aircraft, there are additional deal points that don’t apply to a normal sale. Here are a few to consider:

    • Is the delivery location going to be the same location as where the aircraft will be parted out? If so, then will the aircraft be deregistered at the time of sale? If so, the sale agreement should not require the purchaser to prepare and file a registration application, but instead file a deregistration notice with the FAA. However, if there is any chance that the purchaser will not part out the aircraft and may instead resell the aircraft, then the deregistration request should not be filed.
    If you file the deregistration notice with the FAA it is very difficult to then register the aircraft again at a later date and requires filing proof acceptable to the technical branch of the FAA that the aircraft is still airworthy.
    • A detailed list of the loose equipment that is being sold on the aircraft should be attached as an exhibit to the sale agreement. For example, is the aircraft being sold with the china, glassware and flatware on the aircraft or does the seller plan to reuse the china on a future aircraft? Does it include any equipment that was used in the hangar for the aircraft, like a tow bar?
    • Is the aircraft airworthy and/or are there inspections that are past due? Usually a sale agreement would require the aircraft to be airworthy. However, that may not be necessary in the case of a final sale. If there are inspections that are past due, then the inspections may not be necessary if the aircraft is already at the location where it will be sold and parted out. However, if the aircraft is not at the closing location or has to be flown after closing to the location where it will be disassembled, then one of the parties may need to obtain a ferry permit. The cost of the ferry permit should be measured against the cost of doing the necessary work on the aircraft in order to make it airworthy.
    • The aircraft records, especially burn certificates, are very important when selling an aircraft for parts. The records need to be complete for each part so that the part can be sold and used again. If the records are incomplete the part will have far less or perhaps no value.
    • Is it important that the seller retain the registration number? Unlike when an aircraft is being sold and will continue to fly, if the aircraft is being deregistered, there is no need to file a request to change the registration number at the time of closing. Instead, when the deregistration is filed, a request to reserve the registration number back to seller should also be filed. If the purchaser doesn’t plan to deregister the aircraft immediately, the parties should agree on a timeline to return the registration number back to the seller.
    • The pre-purchase inspection is far less extensive for an aircraft that will be sold for parts. It is not always as important that all systems be fully functional and therefore the timeline from execution of the sale agreement to closing is more compressed, because the inspections prior to closing may just be a review of the aircraft records and not a fully survey of the aircraft.

    Making a decision to sell an aircraft for parts, can be an emotional decision for an aircraft owner because they have often times flown in the aircraft for many years, arriving in many locations with lasting memories. The emotional impact is greater when the aircraft is being sold for parts instead of to someone else who will use it. As a result, the emotional component can sometimes prevent the best business decision from being made. As an example, I have had a client who searched for someone to buy the aircraft for reuse and sold the aircraft at a lower price than could have been achieved if they had considered selling the aircraft for parts.

    When an aircraft is sold for the final time, there are differences in the sale process. The delivery location is far more important, as is loose equipment list and complete aircraft records. Be sure to take the differences into account when entering into the sale agreement.

    This article was originally published by Aerlex Law Group on April 9, 2020 in Articles, BusinessAir Magazine, The Latest.

  • 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; ReneĢ 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
    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.

     

  • Tracey Cheek posted an article
    Jetcraft: Answering Your Questions During COVID-19 see more

    NAFA member, Peter Antonenko with Jetcraft, answers some of your COVID-19 questions.

    Coronavirus (COVID-19) has brought much uncertainty to the world and, unfortunately, the future is still unclear. On behalf of the Jetcraft team, I want to personally reassure you that we are in a strong position to remain open for business and we are ready to transact. Moreover, our team is available to help you navigate your important aircraft-related decisions during this period. Here are some of the most popular questions we’ve recently been answering for our clients.

    Should I consider an aircraft purchase now?

    If you are in the position to do so, absolutely.  While these are challenging times, we encourage those who can to take a long-term view and consider aircraft purchases or upgrades to meet their needs.  However, it’s important to understand how to maximize your benefits and navigate the current market.

    Good quality inventory is becoming available, interest rates are low and bonus depreciation still applies, so there is plenty to take advantage of if this is an option open to you. At Jetcraft, we are well-versed on how to leverage the current market to negotiate the best deal for our buyers.

    Minimizing downside exposure is critical for many of our customers. To help mitigate this, avoid holding a second aircraft on your books when upgrading to a new model. Jetcraft is one of few companies with the ability to take in trades, and we can help customers avoid a risky crossover period.

    All our aircraft are marketed using the most up to date and highest quality photos and videos and we can facilitate on-the-ground virtual aircraft viewings as needed, while travel restrictions are in place.

    I’m not using my aircraft.  Will it lose value?  Should I sell it?

    Not necessarily.  Many factors affect resale price. An aircraft’s value tends to diminish the more it flies and the more hours it accumulates, which is comparable to mileage on a car. Engine hours are another contributor, meaning the closer an engine is to its recommended time between overhaul, the less value it holds.

    By not flying your aircraft, these factors are put on pause and you may in fact experience a slower rate of depreciation. Aircraft are designed to be able to remain grounded if required. Like other modern vehicles, they will not be majorly affected if not used for a period of months. If properly maintained and hangared, the value can be significantly preserved.

    While you’re not using your aircraft, take the opportunity to schedule it in for any maintenance or refurbishments, so it’s in perfect condition for when you next fly. Many facilities remain open and ready to assist customers with their service requirements.

    If you do decide to sell, we are well-equipped to match you with buyers around the world through our global network or help you find a maintenance facility to perform upcoming work that could improve the saleability of your aircraft.

    Will business aviation remain crucial?

    In one word, yes.  It’s at times like these where the speed, efficiency, flexibility and safety of business aviation comes to the fore. The ability to fly anywhere at a moment’s notice and get home quickly is proving invaluable.  By avoiding large crowds of people and minimizing contact with others, business aviation can help limit the spread of infection for those who must travel.

    Sadly, some buyers will be financially impaired by the effects of the COVID-19 outbreak, and yet there will be others who will come through this experience even more convinced of the value of aircraft ownership.

    Who do I contact if I have additional questions about my aircraft? 

    Our Jetcraft representatives around the globe are available to assist you. Contact us for the latest market data, to find out what your aircraft is worth or to discuss your options.

    And remember, stop hoarding, wash your hands and cover that cough.

    This article was originally published by Jetcraft on March 20, 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
    What Does it Cost to Operate a Large Cabin Jet? see more

    NAFA member, David Wyndham, Vice President with Conklin & de Decker, discusses the costs associated with operating a large cabin jet.  

    Any answer to questions asking what it costs to operate an aircraft must always start with, “it depends”. The following article discusses some of the dependent variables.

    For the purpose of our discussion, Conklin & de Decker defines Large Cabin Jets as those that typically seat 10+ passengers, have a flat cabin floor, include a galley for preparing a hot meal, and a lavatory. Cabin height should allow for most people to stand up without much of a stoop (i.e., approximately 70 inches). And range should allow for at least 3,000nm non-stop.

    Aircraft typical of this category are the Gulfstream GIV and G450 series; the Dassault Falcon 900 series; the Bombardier Challenger 600 (through 650) series; and Embraer’s new Praetor 600.

    How Much Does it Cost to Buy a Large Cabin Jet?

    Acquisition costs for new models in the Large Cabin Jet category run between $32m to $45m. Pre-owned prices vary as many of these models will have been in production for many years. However, a typical 20- year-old Large Cabin Jet can be purchased for between $4m and $6m.

    Keep in mind that placing a pre-owned aircraft into service will probably require additional funds, and a buyer may elect to spend a further $1m to $2m on upgrades, paint and interior refurbishment.

    Major maintenance checks may be due soon and must be budgeted for at the time of purchase. If the engines are close to overhaul and are not enrolled on a guaranteed hourly maintenance plan, then buyers should budget another $1m+ per engine for the overhaul. It’s essential that the pre-owned Large Cabin Jet buyer plans on these major expenses.

    What’s the Operating Cost of a Large Cabin Jet?

    Operating costs depends on the size and age of the aircraft. Below are some illustrative averages for a Large Cabin Jet, taken from the Conklin & de Decker Report. These have been rounded-off:

    • Average variable cost per hour: $4,000
    • Fuel*: $2,000
    • Maintenance: $1,200
    • Parts, Labor, Major Maintenance Reserves
    • Engine Reserves: $800

    (* Fuel cost depend on fuel price (per gallon) and fuel burn.)

    What are the Data Costs of a Large Cabin Jet?

    Another variable cost to budget for is Wi-Fi or airborne internet. The ultimate costs will vary, based on the type of connection, speed and amount of data used, and where you fly. If flying in the US, you could use an air-to-ground (ATG) system connected to cellular towers.

    Large Cabin Jets are typically used to fly globally, however, and if flying over water or in remote regions, maintaining internet connectivity will require a satellite-based system.

    There are different installation and rate plan options designed to fit the needs of both the passengers and pilots. New installations for a satellite system can run anywhere from $650k to $800k.

    Monthly rates based on data used and download speeds can start at $25,000 per month. An approximate data estimate is $2,000 to download a movie in HD or $4,000 to stream a live sporting event.

    What are the Fixed Costs of Large Cabin Jet Ownership?

    Fixed costs of Large Cabin jet ownership typically run between $1m and $1.2m per year and include the following:

    1. Salaries
    2. Training
    3. Hangar
    4. Insurance
    5. Refurbishment

    Here’s how the costs for these elements looks:

    1) Salaries: The pay for two pilots ranges from $170,000 to $200,000 per pilot, depending on job duties and level of experience. Depending on your operating location and travel schedule, it may be wise to employ an aircraft maintenance engineer/technician on a salary of $80,000+ per year.

    And if the schedule is complex, involving frequent changes and multiple individuals who can authorize use of the aircraft, a flight scheduler is recommended as well as an administrative person. Their salaries can be in the region of $60,000 per year.

    2) Training: Pilots need training at least annually and that can cost between $75,000 to $80,000 for two crew members.

    3) Hangar: For hangar rental, plan on an annual fee between $50,000 and $60,000 for a typical metropolitan area. Premium locations, like New York City, Hong Kong and Geneva, will be significantly higher.

    4) Insurance: This can range between $30,000 to $60,000 depending on the aircraft value and liability limits. If the aircraft spends a lot of time outside of developed countries, those costs may increase substantially.

    5) Refurbishment: Paint and interior should also be considered. A new interior and paint job may last from seven to nine years with excellent care. Depending on the level of completion, materials and extra features, you should budget approximately $1.2m to $2m for this work.

    Additional costs that can be incurred include acquiring aircraft technical publications for the flight crew and additional maintenance, office and travel expenses.

    What’s the Overall Cost of Owning a Large Cabin Jet?

    In summary, it’s reasonable to plan an operating budget of approximately $2.8m per year for 400 annual hours operations in a Large Cabin business jet, excluding the costs of capital, taxes and depreciation.

     

    This article was originally published by AvBuyer on January 13, 2020.

     

     

  • 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
    Preparing Your Aircraft for Sale see more

    NAFA member, Amanda Applegate, Parter with Aerlex Law Group, shares what you need to know to prepare your aircraft for sale.

    Once a decision has been made to sell an aircraft, there are certain steps that should be taken in order to make sure the aircraft is ready to be sold. By taking these steps in advance, you will make the sales process easier and will avoid losing a potential sale. 

    1. Company Status. A business search should be done on the secretary of state website where the selling entity is registered. The selling entity needs to be active and in good standing. If it is not, the selling entity will need to take steps to bring the entity back to an active and good standing status with the state of registration. A sale agreement should not be signed unless the entity is in good standing, since most sales agreements contain a representation that the selling entity is in good standing.

    2. Title Searches. For a few hundred dollars, a title search (for both the Federal Aviation Administration (“FAA”) and International Registry (“IR”)) can be prepared by any of the law firms or aircraft title companies in Oklahoma City, where the FAA registry is located. More often than you might expect, there are liens on an aircraft that the seller did not know about. Clearing an aircraft title of old liens can be time consuming, especially when the lienholder no longer exists, has changed names, or has been acquired by another company.

    3. Aircraft Records Organization (paper and electronic). The keeper of the aircraft records should be tasked with making sure all entries in the log books and computerized maintenance tracking system are complete and up to date. The paper aircraft records should be organized and reviewed to make sure there are no missing entries. All aircraft records should be gathered and centralized so that when it is time to ship the aircraft records for the pre-purchase inspection, there won’t be a delay.

    4. Specifications Sheet. When the aircraft is listed for sale a specification sheet which describes the aircraft will be developed for marketing purposes. It is imperative that this specification sheet is reviewed by technical experts to make sure the aircraft is being advertised correctly. In some instances, the specification sheet is added to the sale agreement as an exhibit and the seller agrees that the aircraft will be in the condition detailed in the specification sheet at the time of closing. If the specification sheet is not accurate, it could cause the buyer to negotiate a lower purchase price, demand the aircraft be as advertised, or terminate the sale.

    5. Loose Equipment. A list should be prepared showing all of the loose equipment being sold with the aircraft. This way there is no debate as to which loose equipment is being sold with the aircraft and which items the seller is allowed to keep.

    6. Inspections. All upcoming inspections should be performed and if there is any deferred maintenance it should be brought current. During the sale process, the buyer may request that seller handle all inspections through a certain future date. Therefore it is a good idea to understand what inspections are coming due in order to understand the economic impact of the item being requested.

    7. Registration Number. It is important to decide if the registration number currently on the aircraft is going to be retained for future use by the seller. If so, I recommend starting the process to change the registration number and retain the old number even before listing the aircraft for sale, or as you are listing the aircraft for sale. It can take 6-8 weeks for the FAA registry to process the change request and issue the 8050-64 form which allows the registration number to be changed. Therefore the change request should be made early in the process in order to complete the process prior to sale.

    8. Loaner Equipment. If there is any loaner equipment on the aircraft it should be disclosed as part of the sale process. For example, if an engine overhaul is taking place and a loaner engine is currently on the aircraft, arrangements need to be made with the service provider to transfer all agreements to the new owner as part of the sale process.

    9. Maintenance Programs. If the aircraft is on any parts programs, APU, engine programs, or the like, the program provider should be contacted to confirm that the programs are paid current and there are no deferments or deficits on any programs. Any deferments or deficiencies will need to be resolved by the seller.

    10. Building the Sales Team. When you are ready to list the aircraft for sale, you should hire an aircraft broker/consultant to handle the listing for you who has a good understanding of the market for your particular aircraft. This aircraft broker/consultant will be able to help you set a realistic sale price, market the aircraft and handle the logistics of the sale for you. Additionally, you should also have an aviation attorney on retainer who is ready to immediately review a letter of intent or draft a sale agreement when an offer arrives.

    By taking the steps above, including building the right sales team, buyers will find less fault with the aircraft and be more willing to buy your aircraft. A properly pre-planned and organized aircraft sale can help make the sales process straightforward and more efficient.

    This article was originally published in BusinessAir Magaziine, December 2019, Volume 29, No. 12 on January 6, 2020.

     

  • Tracey Cheek posted an article
    What Do I Want the Seller to Fix see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, shares what a buyer should negotiate that the seller fix before the purchase.

    The pre-purchase inspection report will drive the negotiation. It will determine what must be fixed; what should be fixed; and what could be fixed later at some other point. What “must be fixed” are all airworthiness items and Airworthiness Directives. What “should be fixed” relates to operational integrity items. All else falls under “what could be fixed later.” Generally, the buyer wants the seller to cover the cost of all AD issues.

    Of course, there are exceptions to consider. Let’s say the seller’s estimate to fix all the AD-related squawks is $100,000. Let’s say s/he knows of an A&P with whom they have a good relationship. The A&P says the work can be done for $80,000. In that case, it may be more attractive for that buyer to negotiate a price reduction of $100,000 instead of having the seller fix those items. The buyer could realize a 20% savings. But in this scenario, the logistics involved in obtaining a ferry permit and flying the aircraft to a mechanic’s base must also be factored in. If those additional costs approach the $20,000 the buyer hoped to save, it might be better to put the onus back on the seller.

     “What should be fixed” can be considered those items that may have an operational or usage impact but don’t otherwise jeopardize the airworthiness of the aircraft. For example, a spot of corrosion the size of a baseball on the rudder should be fixed. But if the buyer’s intention is to repaint the aircraft anyway, it might be better to negotiate a price reduction than to make the seller eliminate the corrosion pre-sale.

    An intermittent HSI or DGI are examples of “what could be fixed later.” If the buyer’s intention is to upgrade the panel post-acquisition, it’s better to lower the price accordingly and then take care of the failing device during the entire avionics upgrade.

    Determining what the seller should fix is also influenced by the buyer’s general attitude toward an aircraft purchase. Some folks don’t want to deal with any aircraft issues. They just want the plane delivered squawk free. Others have a higher tolerance for addressing issues.  

    These are some of the guiding questions an AOPA Aviation Finance advisor might ask you to help assess your personal tolerance for handling pre-purchase inspection squawks: How important is it to you to have it fixed vs. receiving credit? How long can you stand to go without fixing the item? How urgent is it that you get it replaced or fixed? What kind of relationship do you have with a qualified mechanic? How much effort are you willing to expend in finding a qualified mechanic to save some money? How does this plane’s overall condition stack up against others in the marketplace? In other words, is there enough supply vs. demand in the marketplace to give you any negotiating leverage? 

    For example, we’ve seen a recent surge in the popularity of the Cessna 182. To buyers in that market, we would advise they come prepared with a flexible negotiation mindset. You can have a particular mindset, but if you have to compare your mindset to the realities of the market, you may have to adjust it. After all, there might be ten other potential buyers lined up behind you who are willing to deal with that leaky door seal post-purchase instead of demanding “it simply must be repaired before closing at seller’s expense.” 

    Our experience and advice apply as much to the seller as it does to the buyer. A recent client wanted to sell his Piper Warrior for a price he thought fair. We advised him that an aircraft like his that fits in the flight training usage profile would likely sell for better than what he imagined he could get. We recommended a higher asking price. He took our advice and received bids even above that amount.  

    Our advisors have deep knowledge of both the market and demand. AOPA Aviation Finance has an extensively researched database and can provide guidance on the relative market strengths and weaknesses of most aircraft, from the common to the esoteric.

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

  • Tracey Cheek posted an article
    The Closing: The Final Step to Completing the Aircraft Acquisition! see more

    NAFA member, Amanda Applegate, Partner, Aerlex Law Group, discusses steps to completing your aircraft purchase.

    At long last, you have found the aircraft that fits your needs, the pre-purchase inspection is complete and the discrepancies have been remedied. It is now time for the closing. What does this mean and what needs to be done? For many first-time aircraft buyers, they think the closing will be a long drawn out event. However, I tell all of my clients that the closing should be a non-event and if all of the work has been done in advance, the actual closing should take less than 10 minutes. Once the purchase agreement is executed, a closing checklist should be developed to track all of the deliverables needed through closing. Here is a list of the important items that need to be accomplished shortly before closing:
    1. Aircraft Positioning –
    The purchase agreement should identify the delivery location and who is required to pay the movement costs, if any. The closing cannot occur until the aircraft arrives at the delivery location and in the required delivery condition.
    2. Closing Documents –
    There is an actual filing window at the Federal Aviation Administration (“FAA”) registry in Oklahoma City, OK. All of the closing documents should be pre-positioned with the escrow agent in Oklahoma City, as the escrow agent will be responsible for filing the applicable documents with the FAA. As the buyer, the required FAA closing documents are a registration application FAA Form 8050-1, a statement in support of registration if the purchasing entity is a limited liability company, lender documents if applicable, and a declaration of international operations if there is an upcoming international trip. As the seller, the required FAA closing documents are a bill of sale FAA Form 8050-2, as well as any lien releases if necessary. Additionally, the buyer and seller will each need an active transacting user entity account with the international registry in order to register the contract of sale at closing. Further, the purchase agreement more than likely requires other non-FAA closing documents, such as a delivery receipt and warranty bill of sale.
    3. Insurance –
    During the purchase process an insurance carrier should have been selected and a determination on the amount of coverage required. Shortly before closing, insurance should be bound and the buyer should receive and review the certificate of insurance. If the aircraft is financed or managed by a third party, these parties will have specific insurance requirements which need to be evidenced on separate insurance certificates.
    4. Maintenance Programs and subscriptions – 
    If the aircraft is enrolled in any maintenance programs or subscription services, the third party providers must be contacted to confirm the account is in good standing, paid in full and transferrable upon closing.
    5. Closing Statement –
    The escrow agent will prepare a final accounting statement based on the terms of the purchase agreement and information provided by the parties. The statement will usually include the purchase price and any other fees due under the purchase agreement or to third parties, such as brokers. Any movement costs or similar expenses should be calculated a few days prior to closing and agreed upon by the parties prior to the day of closing.
    6. Inspection Facility Invoice –
    Oddly this is an item that can often cause a delay in closing. The aircraft cannot depart the inspection facility for the delivery location until all invoices are paid. However, invoices can’t be paid until they are final. The invoices from the inspection facility are very detailed and often take a long time to get into final form. Once received they must be reviewed in detail since certain costs are buyer costs and other costs are seller costs as dictated by the purchase agreement.
    7. Tax plan – 
    The tax planning at the federal and state level for the acquisition should have been completed while the pre-purchase inspection was occurring. At closing, the tax plan should be implemented. 

    All of the items above can be accomplished in the days leading up to closing. If done properly the actual closing is a series of emails or a conference call with all parties lasting less than 10 minutes!

    This article was originally published by BusinessAir Magazine, The Latest, on November 19, 2019.

  • Tracey Cheek posted an article
    Aircraft Operating Costs: How to Measure Them see more

    NAFA member, David Wyndham, Vice President at Conklin & de Decker, discusses where some of the common mistakes are made when comparing the operating cost of one business aircraft against another and how data can be used to give a true apples-to-apples comparison.

    When comparing business aircraft operating costs, data from multiple sources is likely to provide inconsistent results. Your first consideration should be the quality of the data and where it is from.

    A quality supplier of cost data should explain where and how their costs were calculated.

    • Good cost data should clarify whether you are looking at the operating costs for a new aircraft or a used model;
    • It should detail how many years the costs are projected (for example, a five-year budget will differ significantly from a 10-year budget);
    • You also need to establish if the costs only cover scheduled maintenance during the projected period, or whether they accrue for other maintenance and unscheduled maintenance.

    How Does Utilization Affect Operating Cost?

    Many aircraft have calendar-based maintenance requirements. If an inspection is due every six months, the aircraft will have a different average hourly cost at 250 annual hours versus 500 annual hours. The trip profile will also further impact cost, as will varying fuel consumption for long or short trips.

    For helicopters, flying with external loads or in a high-cycle operation will significantly affect the costs. Likewise, high-frequency utility operations are going to see very different costs compared to a low-utilization VIP operation. The cost of special equipment also needs to be accounted for.

    To be fully understood, all costing assumptions must be stated and fully explained.

    Operating Costs: Which Key Terms Need to be Defined?

    Fuel cost will clearly be different for a long trip versus a short trip but what is the assumed cost of that fuel? It will only create confusion if you attempt to directly compare fuel costs for Business Jet A flying a 600-mile trip at $4.50 per gallon versus Business Jet B flying a 1,200-mile trip at $5 per gallon.

    There are many other terms that need to be defined beyond fuel cost. For example, are the salary costs based on two senior captains, or one senior captain and a first officer? Is the hangar-cost based on a major metropolitan area?

    Maintenance costs can take days to analyze in detail. In general, you need to define the period for which the costs are assumed and clarify if they accrue for maintenance outside this period.

    Are the engines accruing for only the overhaul, or are they on a guaranteed hourly maintenance program with full coverage for all engine maintenance, including unscheduled events? It’s important to have a clearly defined explanation of what maintenance is assumed to be included and for how long.

    You should also clarify if the costs cover fuel and maintenance costs only, or additional items too. When trying to determine the total costs to own and operate an aircraft, more data is always better.

    What is the Cost per Nautical Mile?

    In aviation, we have a habit of always talking in terms of flight hours. However, if the aircraft is used to transport persons from one location to another, the aircraft's job is to fly a given distance. Airplanes that fly point to point should be compared on a cost-per-mile basis.

    Let's compare a King Air 350i and a Citation CJ4. Using the default Conklin & de Decker variable cost per hour, the King Air 350i variable cost is $1,312 per hour and the CJ4 shows $1,708 per hour.

    There you have it, the jet costs almost $400 per hour more to operate! But what's missing here?

    It’s the cost per nautical mile.

    If the King Air averages 281 nautical miles each hour, the cost per mile is $4.67. If the CJ4 averages 409 nautical miles each hour, the cost per mile is $4.18. What initially may look like one airplane having 30% higher variable costs per hour really has a 1.5% per mile lower variable cost.

    There is not a single set of correct assumptions and methodology to apply when comparing aircraft costs. The director of maintenance will be concerned with seeing the details of the maintenance budget.

    The CFO, although requiring accurate maintenance costs, will need to know the tax implications of the deal and depreciation predictions but is not likely to need all the maintenance line items. The finance representative will need a full set of costs to know that the buyer or lessee can afford to operate the aircraft, not just make the payments.

    In Summary: Consider the Source

    The supplier of the cost data needs to not only accurately represent the costs but also explain them and answer your questions.

    Costs are not a commodity where cheaper is always better. An aircraft that has been well maintained and has up-to-date avionics and a guaranteed maintenance program will cost more to acquire than the same model with a sketchy past, poor records, and engines that are approaching a major check. In the end, it’s true to say that you get what you pay for.

    This article was originally published by AvBuyer on November 8, 2019.

  • Tracey Cheek posted an article
    Is It Beneficial To Get a Loan Against My Home? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about aircraft financing.

    Q: I own my home outright, so would it be more beneficial to get a loan against my home at a much lower rate, than to go through an aircraft finance company at a considerably higher rate?

    A: While HELOCs can potentially offer rates slightly lower than traditional aircraft financing, going this route ties up equity in your home. Equity that may be needed for inevitable home repairs. Financing through a traditional aircraft loan only uses the aircraft as collateral. This helps keep equity in your home and other assets. Most importantly, however, is that aircraft lenders understand the aircraft purchasing process. They have access to detailed valuation tools and will ensure that the appropriate documents are filed with the FAA. These steps would be entirely on the borrowers’ shoulders when using non-traditional financing. AOPA Aviation Finance’s staff help alleviate the stress of buying an aircraft. In the current rate market these benefits typically outweigh the minor differences one may see with a mortgage rate versus aircraft rates.

    This article was originally published by AOPA Finance on October 7, 2019.

  • Tracey Cheek posted an article
    What Is The Typical Down Payment Percentage on a Jet? see more

    NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about jet down payments.

    Q: What is the typical down payment percentage on a jet? Possibly a CJ3+?

    A: How the aircraft is being used will be a primary factor in determining the required down payment. For Part 91 personal/business use lenders typically will finance up to 85% of the purchase price or aircraft value, whichever is less. Part 135 charter or other commercial usage generally requires larger down payments. 30% down is typical for this type of usage. How the loan is structured can also play a factor in the down payment. AOPA Aviation Finance can offer solutions such as interest only, asset based, or longer fixed term structures. Larger down payments are typically required for these types of loan structures. Please give us a call, we’d be happy to discuss your situation in further detail.

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