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.
Adam Meredith, of AOPA Finance, addresses commonly asked questions on aircraft ownership. see more
NAFA member, Adam Meredith, President of AOPA Finance, addresses commonly asked questions on aircraft ownership during this difficult time. Purchasing an aircraft can be a challenging process under normal circumstances, but can be even more difficult to navigate during market volatility.
Question: With the current market volatility, do you find that lenders are tightening or loosening their credit requirements?
Answer: We have definitely seen some that are tightening credit. Specifically, some lenders are requesting copies of bank/investment statements that are within the last couple of days (vs. 30 days, under regular times). Given stock market volatility this isn’t too surprising. Also, we’ve seen some lenders that are being more cautious lending to individuals with direct financial exposure to COVID-19 (i.e. service industry companies not deemed essential).
Question: What advice are you giving to members who were currently looking to purchase before all of the shelter in place orders? Should we continue our search or place our search on hold until all of this blows over?
If you’re personally at high risk (financially or otherwise) to COVID-19, you’d be well advised to pause the purchase process. However, for everyone else, I’d encourage you to keep looking and work with sellers to create a plan for how to push through the closing process. For advice on guidance with shelter in place requirements, reach out to our trusted legal staff if you’re a legal services plan participant. If not, reach out to our Pilot Information Center to get the latest guidance.
This article was originally published by AOPA Finance on April 23, 2020.
How is the Coronavirus Affecting Used Aircraft Prices? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses how the coronavirus pandemic has affected pricing of used aircraft.
As of this writing, the coronavirus pandemic has not resulted in any measurable decline in used aircraft prices. That's not to say it won't over time, but in the near term, prices are holding steady.
Why aren’t we seeing values lower? Despite being blindsided by the consequences surrounding the coronavirus pandemic, the aviation market was already in a unique situation because inventory was pretty thin. Traditionally, when supply is constrained, market pricing will stay roughly the same. That holds true now, despite any drop-in demand that we may be witnessing.
Another reason prices have remained steady is because fewer owners are listing planes right now. There is so much uncertainty surrounding the ability to close deals (financing, the logistics of inspections and aircraft delivery) that folks are more comfortable sitting on the sidelines than taking the risk of losing out on a deal.
While the coronavirus pandemic might spur some people to sell, as of yet, there’s been no noticeable uptick in these situations. AOPA Aviation Finance, (“AAF”) is working on a deal right now with a pilot-owner who’s trying to close on a TBM turboprop single. He's buying from an 80-year-old gentleman, but such transactions are rarer than they are regular.
The bottom line is if you're thinking this might be a good time to pick up something cheap, our answer is, it’s always worth looking, but the markets are efficient and the professionals in the industry help to keep it way, so you’ll have to look hard for those gems.
This article was originally published by AOPA Finance on April 30, 2020.
How is the Coronavirus Affecting the Closing Process for Aircraft? see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses the challenges of aircraft closings during the Coronavirus pandemic.
Unlike real estate, where the exchanged property does not move, the challenge with closing on an aircraft is that eventually it must be flown to its new home. It’s a rare transaction where buyers purchase an airplane from their home airfield. Therefore, how to legally move the aircraft is one major concern for buyers during the coronavirus pandemic. Another is how to get a pre-buy inspection done.
First, there is the sticky problem of getting an aircraft inspected. It’s not clear whether maintenance and repair shops are currently open to perform pre-buy inspections, or whether their employees can even report to work. Some states have not deemed aviation techs “essential.” What jobs are deemed “essential,” how, and by whom such job designations will be enforced remains up in the air. Even if aviation techs are, parts suppliers might not be. That means needed parts may not get delivered. In normal times, a closing might take 30 days. In these abnormal times, plan on the process stretching to 45 days or more.
Beyond that, is it legal for a ferry pilot or the new owner to fly an airplane from the airport where it is hangared to its new home base? State laws vary on the subject. How complicated it will be to transport the aircraft may depend on factors like the route of flight and the number of states involved. Is the airplane going from California to Maine? Or from Wisconsin to Indiana? One has to ask oneself, “Am I going to have a challenge from this state?” Other questions follow, including, “Which governing body would enforce such a challenge — state or federal?” “Is it within FAA or state jurisdiction?” None of that is easy to navigate.
If you can imagine the difficulty of flying from one European country to another and having to deal with the balkanized ATC system there, then you have some idea of the current complexity surrounding moving an aircraft across state lines during this pandemic. At AOPA Aviation Finance, (“AAF”), our advice is to call AOPA’s Legal Services to get better clarity on your specific situation.
That is a great benefit of AOPA, having multiple resources all in one place. This complex situation is the perfect time to tap into them.
Great advice. Great rates. From helpful and responsive reps you can trust. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (800.627.5263), or click here to request a quote.
This article was originally published by AOPA Aviation Finance Company on April 30, 2020.
State of general aviation with AOPA President Mark Baker see more
NAFA member, Mark Baker, President of AOPA, discusses the latest on AOPA's advocacy efforts to protect general aviation pilots and community airports during the coronavirus pandemic.
AOPA President Mark Baker hosted a recent livestream on YouTube to bring you the latest updates on our efforts to obtain relief for pilots on several certification deadlines, secure funding for airports, maintain access to airspace, and more.
Mark took questions and answered them during the live discussion moderated by AOPA Senior Vice President of Marketing Jiri Marousek.
In case you missed it, listen to the livestream now: State of general aviation with AOPA President Mark Baker.
This livestream was posted by AOPA on April 22, 2020.
GA Fights for Public Benefit Exemptions, Accommodations see more
NAFA member, AOPA, fights for the general aviation industry public benefit exemptions and accommodations.
As the coronavirus pandemic alters every facet of life and how industries around the globe operate, the aviation sector is trying to find its new normal. The FAA has taken steps to address the heavily impacted operations of commercial carriers amid the COVID-19 pandemic, and now, general aviation continues to ask for the same treatment as it provides vital services to the public and economy while fighting a worldwide crisis.
General aviation is providing vital services to the public and economy during the coronavirus pandemic, as exemplified by Michigan Seaplane flight school instructors Nick Hall and Mike Mato, who have been flying medical face shields to a Michigan hospital in a Cessna 206. AOPA and other aviation groups are requesting exemptions for GA because it is serving a critical role. Photo courtesy of Nick Hall and Mike Mato.
In an April 1 letter to FAA Associate Administrator for Aviation Safety Ali Bahrami, AOPA and seven other industry groups urged the agency to empower the continued health of the multibillion-dollar GA industry through extensions to examinations, certifications, maintenance, and filings. GA has stepped up in many ways to help the nation deal with the COVID-19 crisis through its more than 5,000 public airports across the country, providing transportation and logistical support for needed supplies and personnel.
While the commercial aviation sector has taken center stage as being hard hit throughout the pandemic, the vital contributions of GA often go unrecognized.
General aviation has long been vital to the nation’s transportation and economic infrastructure,” said Christopher Cooper, AOPA director of regulatory affairs. “From providing medical resources to remote locations to supporting millions of jobs and economic activity across the United States, the benefit general aviation provides to the public, especially in times of national crisis, is enormous. Having these exemptions and deviations approved by the FAA will ensure general aviation has limited delay in operations to help the fight against the COVID-19 pandemic.”
The letter also cited a recent PricewaterhouseCoopers LLP study showing that GA contributes 1.2 million jobs and $247 billion in economic activity to the United States. The Cybersecurity and Infrastructure Security Agency (CISA), which falls under the Department of Homeland Security, has designated transportation, which includes GA, as a critical infrastructure sector. Air medical is specifically named by CISA as a critical workforce, and air medical aircraft continue to provide lifesaving missions for those in need whether stricken by COVID-19 or other health emergencies.
“This letter builds upon an earlier request sent to the FAA on March 17, further explaining why these extensions are justified since general aviation is, indeed, a public good. Regulations and exemptions must be found to be for the public good, and this is the rationale the FAA used to provide exemptions for air carriers and commercial operations. We believe general aviation should also be provided exemptions based on the same rationale,” said Cooper.
Similar regulatory activity has already been enacted by the European Union Aviation Safety Agency in Europe and the Civil Aviation Authority in the United Kingdom, where comparable exemptions have been granted to both commercial and noncommercial operations in their respective countries.
Along with AOPA, the Air Medical Operators Association, the Experimental Aircraft Association, the General Aviation Manufacturers Association, Helicopter Association International, the National Agricultural Aviation Association, the National Air Transportation Association, and the National Business Aviation Association signed the April 1 letter.
AOPA and seven other GA organizations signed an April 1 letter to the FAA requesting a wide range of exemptions and deviations:
- Extension of FAR Part 61 pilot currency requirements, including the flight review and instrument proficiency check.
- Guidance that 709 reexaminations or paperwork inspections in person (such as logbook inspections under FAR 61.51, or maintenance record inspections under FAR 91.417) be deferred or at least be conducted electronically during the current social distancing safety protocols and directives regarding nonessential activities.
- Extensions for certificated flight instructor certificate renewal, expiration, and endorsement periods.
- Extension of knowledge exam expiration period.
- Extensions for applicants on the ability to complete practical examinations.
- Extension for filing documents under FAR Part 13 (Subparts C, D, and G).
- Extensions for aircraft maintenance and continuing airworthiness requirements with necessary mitigation procedures.
This article was originally published by AOPA on April 2, 2020.
Stimulus Package Includes $100 Million for GA Airports see more
NAFA member, AOPA works to support GA Airports across the country.
A $2 trillion stimulus package passed unanimously by the Senate to support the economy during the coronavirus pandemic includes $100 million to protect general aviation airports and maintain small and rural communities’ access to aviation services.
The funding for GA airports—which the Aircraft Owners and Pilots Association (AOPA) made a top advocacy priority for fighting the pandemic’s impact—is part of a $10 billion emergency appropriation for airports in the stimulus plan that passed the Senate by a vote of 96 to zero on March 25. The package is expected to be approved by the House and sent to President Donald Trump on March 27 for signing.
Of the more than 3,300 airports in the federal system, 2,815 airports that have no scheduled air service or have fewer than 2,500 passengers per year on scheduled routes will be eligible for the $100 million in grant awards—roughly $36,000 per airport.
The money will come from the general fund, not the Airport and Airway Trust Fund, and may be used for any purpose on which airport revenue may lawfully be spent.
No local match will be required as the federal government’s share of the grants will be 100 percent. Non-hub and small airports were exempted from a condition requiring airports receiving the grant funding to retain at least 90-percent of their workforce through the end of the year.
“We need these airports and I just want to thank those in Congress who understand the importance of them, especially the thousands of small airports across the country. I appreciate the fact that they ensured this emergency funding is a priority as the nation works to meet the challenges caused by this pandemic,” said AOPA President Mark Baker. “These airports provide critical services to many communities and account for millions of operations each year, while also doing distinguished service during emergencies including natural disasters.”
Other provisions of the stimulus package related to aviation require the Department of Transportation to take into consideration the air transportation needs of small and remote communities.
The legislation suspends certain aviation excise taxes through the end of 2020 including the passenger ticket tax, cargo tax, and fuel taxes on kerosene used in commercial aviation, including Part 135 operations.
AOPA is continuously updating its coverage of the coronavirus pandemic’s impact on general aviation. For more information please visit this page.
This article was originally published by AOPA on March 26, 2020.
AOPA Backs Emergency Airport Funding to Fight Coronavirus Impact see more
NAFA member, AOPA, urges Congress to support emergency airport funding.
AOPA and six other aviation groups are urging Congress to support needed funding for airports across the country while ensuring that small and general aviation airports also receive a portion of any funds made available to help cope with the coronavirus pandemic.
Assistance to airports should include funding “exclusively for small and general aviation airports that serve thousands of communities across the country and which have also been impacted by this situation,” the groups said in a letter delivered to the bipartisan leadership of the House and Senate appropriations committees on March 23.
“We need a strong and vibrant airport ecosystem in this nation and we want to do everything we can to ensure they get help to meet the operational challenges caused by this pandemic and ultimately continue to accommodate the millions of general aviation operations each year,” said AOPA President Mark Baker. “These airports will remain a priority for us.”
The letter noted that volunteer pilots fly from airports that are the lifeline of many small and rural communities to deliver goods and services during times of natural disasters and emergencies. The diverse general and business aviation aircraft fleet is “capable of rapidly responding to needs in every part of the country and transporting time sensitive supplies, medical and testing equipment, organs for transplants, and key personnel and patients on demand,” it said, adding that “now more than ever, the country will rely on our airport ecosystem.”
As the pandemic has continued, AOPA has been reporting on the coronavirus’s increasing impact on GA airports, events, and activities.
The organizations that joined AOPA in signing the letter include the Experimental Aircraft Association, the General Aviation Manufacturers Association, Helicopter Association International, the National Air Transportation Association, the National Business Aviation Association, and the National Association of State Aviation Officials.
This article was originally published by AOPA on March 23, 2020.
Aircraft Purchases During Stock Market Swings see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses aircraft purchases during stock market swings.
Q: Given the current volatility of the market, what advice are you giving to members contemplating an aircraft purchase?
A: In times of volatility, in particular with wild stock market swings, you want to maintain as much cash as possible. Taking a methodical approach of buying into markets that are depressed is arguably more important than having the proverbial crystal ball that helps you get out of the market before a crash. That said, there has probably been no better time to obtain financing, whether it be for your house or airplane, or any other relatively stable asset then now. With interest rates for excellent credits on loans over $2M in the 2.5 to 3.0% range, this is truly an unheard-of period of time. Knowing what options are available is what AOPA Finance does best because of the strength and depth of our membership. Don’t wait to find out what your specific situation looks like, call us and find out how we can help you take advantage of this rare time.
This article was originally published by AOPA Aviation Finance Company on March 11, 2020.
Congress Introduces Legislation for a National Aviation Center see more
NAFA member, AOPA, shares the latest on legislation for a national aviation center.
Known as the National Center for the Advancement of Aviation (NCAA), the bill has already garnered overwhelming support from AOPA and organizations representing all segments of aviation across the country.
The proposal will open the door for all stakeholders to come together in support of a long-overdue, national industry forum. It will help ensure science, technology, engineering, and math (STEM)-based aviation curriculum reaches the 25,000-plus high schools across the country, assist in apprenticeships, and help military veterans and others transition to good paying technical jobs in the aviation industry.
The NCAA would be a private entity and no general fund taxpayer dollars would be used to support it. The legislation calls for funding the initiative by using a small percentage of the interest that is accrued annually on the taxes and fees collected from users and deposited into the aviation trust fund. Today, users of our aviation system pay for nearly all the costs associated with the operations of the FAA including air traffic control modernization. Moreover, the proposed center would be prohibited from involvement in any political or legislative activity.
Spearheaded by U.S. Sens. James Inhofe (R-Okla.) and Tammy Duckworth (D-Ill.), the NCAA would focus on four key initiatives: aviation workforce development, including the facilitation of STEM-based aviation curriculum for high school students; a repository for aviation research; safety and economic data analysis; and the fostering of needed collaboration among the entire aviation industry.
“The widespread support for this center is very encouraging. This center would do more to promote needed cooperation in the aviation community including efforts to address the workforce challenges our industry is facing now and into the future. Whether it be pilots starting in general aviation, military or commercial pilots, technicians, maintenance workers, or others, we need to ensure that our industry remains competitive and can meet these challenges,” said AOPA President Mark Baker. “AOPA is proud to work alongside allies in Congress and respected aviation leaders to make this center a reality.”
Demand for air travel, a sizeable cohort of commercial pilots nearing the mandated retirement age, and the high cost of training have all led to a shortage of qualified professionals in the industry. Boeing’s 2019 Pilot and Technician Outlook predicts the need for 804,000 new civil aviation pilots, 769,000 new maintenance technicians, and 914,000 new cabin crew over the next 20 years to fly and maintain the global aircraft fleet. In North America alone, Boeing suggests 212,000 new pilots and 193,000 new technicians will be needed over the next two decades.
According to the Aeronautical Repair Station Association the technician shortage is costing the U.S. aviation maintenance industry an estimated $118 million per month ($1.421 billion per year) in lost economic opportunity. Additionally, the Aviation Technician Education Council predicts that the mechanic population will decrease 5 percent in the next 15 years. New entrants make up just 2 percent of the technician workforce annually, while 30 percent is at or near retirement age.
The U.S. Air Force is short thousands of fighter pilots but has taken significant steps to reduce that gap and seek initiatives to retain more airmen. Using 3D virtual reality, the Air Force is looking to speed up pilot training—a technique that could also benefit the civilian pilot training sector. The NCAA would be an avenue for the Air Force to share its experience, allowing for cross-industry collaboration and potentially reducing the cost of civilian flight training.
The future of the entire aviation ecosystem depends on effective training, resources, and innovative ideas, which can be accomplished through the establishment of the NCAA.
Additionally, this center would allow the FAA to focus on safety and certification while the industry invests in the collaboration of promoting aviation through education, training, research, and awareness of the many job opportunities in the aviation industry.
This article was originally published by AOPA on February 27, 2020.
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.
Deposits see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, discusses when a deposit is required and why during your aircraft deal.
Typically, larger airplane transactions require deposits, specifically, deals of a million dollars or more. Why do lenders ask for a deposit? As the old saying goes, “Trust, but verify.”
Larger transactions tend to involve assessing more sophisticated, more complicated financials. Often multiple legal entities may be involved. Each of the entities need to be reviewed, requiring substantially more due diligence. The additional due diligence accrues additional costs in the form of time, resources, third-party background checks, and other checks and searches. All of those things equate to unavoidable upfront costs.
Understandably, a lender is loath to go out of pocket on a transaction after putting forth so much effort. It’s not enough to trust that a borrower is committed to the deal. A deposit verifies that commitment. The size of the deposit depends on the selling price. It’s usually proportional, ranging from a couple thousand dollars up to one percent of what’s been negotiated.
It’s always prudent to expect to submit a deposit, even when the topic isn’t initially mentioned. Deposit discussions generally occur after a term sheet--a broad estimate of structure-- is drawn up and then agreed to by both parties. Only once the borrower agrees to the terms and conditions and decides to move forward should a deposit discussion take place. Anything sooner should fire off alarm bells.
If your transaction requires a deposit, we cannot overstate the importance of dealing with a trusted financial institution or escrow company If in doubt, give AOPA Aviation Finance a call. We work with trusted escrow agents all the time. We will help you find one with which both parties to your transaction can feel comfortable.
If you’re working through a bank, our position is that institution is an appropriate place to hold the deposit. If you’re not working with a bank, we strongly recommend an escrow agent to handle that duty. In past articles, I referenced using third-party escrow services to hold the deposit. That’s because there are occasions when it is better to have an escrow agent bear the burden. A broker or a private party seller are examples of entities which are not highly regulated, if at all. As such they don’t have as much exposure to liability and are proportionally more difficult to extract compensation from should the deal go awry, compared to highly regulated banks.
Escrow companies tend to carry errors and omissions insurance, and many of the good ones are also bonded. Neither of those assurances match the accountability found in banking regulations, though. With your deposit at a bank, regulators and regulations back you in the event the deal goes sideways.
Enlisting the services of someone trusted like AOPA Aviation Finance will ensure whomever you work with is properly vetted, and that you are working with reputable folks. Regardless of whom you add to your team to work on the deal, important questions to ask and get answered before putting down a deposit include, “Are you bonded? What errors and omissions insurance do you have? Do you have references from satisfied customers? Have you ever been sued?”
This article was originally published by AOPA Finance on December 10, 2019.
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.
Structuring an Aircraft Sale to a Flight School see more
NAFA member, Adam Meredith, President of AOPA Aviation Finance Company, answers your aviation finance questions.
Q: Hi Adam, I’m the owner of a 77 B-55 Baron. My local flight school is interested in purchasing it but is unable to finance. Any ideas on how to structure a sale?
A: If the flight school is unable to secure financing through an SBA loan or other means, seller financing might be an option. With AOPA’s Pilot Protection Services added to your membership you will have access to consultation with one of our panel attorneys. They would be able to help set up the appropriate contracts to facilitate the sale.
Q: I'm an AOPA member that recently purchased an airplane in Missouri and brought it back to North Carolina two days after purchase. I intend to eventually incorporate business use into my flight time, but for now the use is personal. I have two questions: What sales tax can I expect to pay on this purchase, and from what state would I be taxed? I intend to upgrade avionics for ADS-B requirements. If I incorporate business use into my flying before the avionics purchase, is any of this deductible or do I need to put it under an LLC before this happens?
A: For tax-related questions your CPA would be able to provide the appropriate answers. Additionally, AOPA’s Pilot Protection Services has in house attorneys that specialize in aviation tax law. Adding PPS to your membership will give you access to these attorneys.
This article was originally published by AOPA Aviation Finance Company on October 23, 2019.
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.