aviation

  • Tracey Cheek posted an article
    The Dos and Don’ts of Hiring Aircraft Appraisers see more

    NAFA member, Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services shares what you need to know when hiring an aircraft appraiser.

    The joy of taking flight is one like no other. The business of getting to that take off though can be another matter.

    The purchase or sale of an airplane isn’t exactly an everyday sale. For many buying or selling an aircraft, it’ll be their first time at the rodeo. That’s all the more reason to be prepared when getting into an aircraft transaction.

    Hiring an aircraft appraiser is an important part of the aircraft transaction process. If you’ve never worked with an aircraft appraiser before, it’s essential that you prepare yourself for the experience.

    Read on, and we’ll walk you through all the dos and don’ts of working with aircraft appraisers.

    Understanding Aircraft Appraisal

    If you’re going to get an aircraft appraised, hopefully, you understand why you’re taking such a step. But many potential aircraft owners simply call an appraiser up because they’re told to do so. They don’t take the time to understand the reasons behind the recommendation.

    A proper understanding of the aircraft market is hard to get. A big aircraft company is likely to have a team of appraisers on hand at all times who keep incredibly detailed track of aviation industry trends and costs. Those unlucky enough to not own a multi-million dollar company have to outsource to receive such expertise.

    An aircraft appraiser uses their unique knowledge of the aircraft and market trends to properly estimate the value of a given aircraft. Appraisers are held to a high standard and must be able to back up their estimates with a huge amount of data.

    Their estimates must hold up to scrutiny even in a court of law.

    You might need an appraisal for a variety of reasons. You can use an appraisal to properly find the right selling price for an aircraft or to see if the buying price for another is reasonable.

    There are many other reasons to have aircraft appraised. You might be refinancing a loan, looking at an insurance policy, or just curious about the current value of your aircraft.

    It’s important to understand the purpose of your appraisal. This way, the appraiser you hire can take special care to analyze discuss areas most closely related to those goals.

    Do Find Someone Qualified

    The aircraft appraisal industry is unregulated. That means that anyone out there can technically give a value amount for an aircraft since there are no required standards for training or experience.

    That doesn’t mean you should throw a dart at the wall and hope you hit someone who knows what they’re talking about.

    The Appraisal Standards Board develops and publishes a set of standards on behalf of appraisers. Ensuring that your appraiser lives up the standards of that publication can be important.

    There are two organizations in the aircraft appraisal world that are known for their great reputation. They are the N American Society of Appraisers (ASA) and the International Society of Transport Aircraft Trading (ISTAT) and they both have long histories. VREF has a substantial staff of Senior Accredited Appraisers through both the ASA and ISTAT. It is important to note that hiring an appraiser is hiring his knowledge and experience. If the appraiser is not qualified to appraise the asset then he/she should bring in an appraiser that is qualified, or the report would not be considered USPAP compliant.

    Both organizations provide a wealth of training for their members. A badge of certification from one or both of these organizations can mean a lot in terms of an appraiser’s credibility.

    Regardless of who you go with, you should ensure that the appraiser you hire qualified and experienced when it comes to the kind of aircraft under consideration. Ensure that a field visit is part of their process.

    An appraisal is a tricky business and there are many ways to come to a final number. The last thing you want is someone who doesn’t know what they’re talking about giving you a number that will lead you in the wrong direction.

    Don’t Get Too Subjective

    A proper appraisal of an aircraft will be an objective evaluation of the aircraft. You are filling out a balance sheet, not a sales pitch. As such, don’t be surprised when certain selling points don’t add up to the valuation you might wish for.

    Having the wrong floor plan or missing critical equipment for compliance might be a recipe for lower than anticipated values.

    Just because you have a certain taste for a design or feature, doesn’t mean that aspect will add value to your aircraft. There are certain aspects you might find cool about an aircraft that actually detract from the value.

    Enjoyment is subjective after all, and it’s important to keep this in mind when it comes to appraisal.

    Do Consider Databases Used

    An appraiser will need to pull and use a certain market database for their analysis. Publications are consulted frequently by aircraft appraisers, but not all these publications paint the same story about the state of the market or industry.

    VREF Aircraft Value Reference & Appraisal Services, delivers aircraft and engine data through online subscription services and published quarterly digests. VREF provides valuations, appraisals and advisory services to a world-wide client base of aviation professionals including, banks, financial institutions, lessors, manufacturers, aircraft operators and suppliers. VREF Aircraft Value Reference & Appraisal Services plays a key role in informing decisions and identifying opportunities within the aviation industry. VREF is also the official Valuation Guide and Appraisal company for the AOPA.

    The database used for reference can have a huge impact on the final estimated value of an aircraft. As such it’s important that you, as the hiring party, stay well informed.

    The Dos and Don'ts Of Aircraft Appraisers

    Aircraft appraisal can be a tricky business. If it’s your first time working through an aircraft transaction, it can take a minute to get used to working with aircraft appraisers. But with the above tips, you’ll be well on your way to a proper valuation.

    Need more info about aircraft ownership? Feel free to contact us with any questions.

    This article was originally published by VREF Aircraft Value Reference & Appraisal Service on April 18, 2019.

  • Tracey Cheek posted an article
    What Are The Benefits Of Title Insurance For An Airplane Purchase? see more

    NAFA member Adam Meredith, President of AOPA Aviation Finance Company, answers your questions about title insurance when purchasing an airplane.

    Question: I’m planning to purchase a used airplane in the next 6-months. I’ve heard some owners talk about not needing title insurance? Wouldn’t this be required by a lender? I’m familiar with title insurance for a home purchase, but what exactly are the benefits of title insurance for an airplane purchase?

    Answer: Surprisingly, no, many lenders do not currently require title insurance on every transaction. 

    Similar to a home, your aircraft also has a title history which should be reviewed before buying. While most AOPA members know the importance of this and perform a title search prior to buying an aircraft, many may not know there are numerous scenarios where a lien or claim can end up in the FAA registry and/or otherwise “clouding” your ownership interest. By obtaining title insurance, the title insurance company will defend you legally against any bogus claims.  

    Question: I would like to purchase my first airplane this year. My price range is about $50k.  I’ve been looking at your website and the list of financial documents you will require, especially for a business owner like myself, seems daunting. Are there any other options for someone like me? I have good credit and good cash flow.

    Answer: While providing the full list of financial documents gives you the most lending options, some of our lenders do offer low doc products. The underwriting guidelines tend to be more constrained, however, for well-qualified borrowers all that is needed is an application. Because this product does not require supporting financials rates will average .25-.75% higher than our most competitive options. If you are interested in more details about this low doc option, please give us a call and we can give you a more specific rate quote.

    This article was originally published by AOPA Aviation Finance Company on May 3, 2019.

  • Tracey Cheek posted an article
    Owner Personal Liability for Illegal Charter Ops see more

    NAFA member David G. Mayer, Partner with Shackelford Law, discusses illegal charter operations, personal liability and LLCs.

    It’s an unfortunate reality that private aircraft accidents occur all too often and cause fatalities, personal injuries, and significant property damage. In the first half of 2019, fatalities in private aircraft accidents soared to 47 people, an all-time high for comparable periods. Families who experience these losses usually hire lawyers to seek compensation from aircraft limited liability companies (LLCs), members, owners, operators, manufacturers, and others.

    Many aircraft owners believe that, if an LLC holds title to their aircraft, the LLC will protect the owners, as LLC members, from personal liability arising from any accident. This belief extends to any accident that occurs during illegal charter operations. 

    However, their belief may be wrong. As discussed below, just one prevalent type of illegal charter operation may occur if an LLC operates flights only for the owners/members, using the owner/member’s cash, paid into the LLCs for aircraft operating costs. Though surprising to many people, the LLC becomes a “flight department company” operation that not only is functioning illegally but also may be exposing the owner/members’ personal wealth to the FAA civil penalties and other claims.

    Looking into a Real Fatal Accident

    On March 8, 2019, a tragic aircraft accident occurred in Florida that killed five people when the twin-engine Piper Aztec in which they were flying hit the surface of a lake on approach to Palm Beach County Glades Airport (KPHK), Pahokee, Florida. Although yet to be officially determined, the initial facts suggest that the passengers hired the pilot who conducted an illegal charter for unspecified compensation. Though he was certified for commercial flights, the pilot’s required second-class medical certificate lapsed on Nov. 30, 2018, more than three months before the deadly flight. As a result, the pilot could not legally conduct the flight. For more on pilot operations, read my article titled Should Aircraft Owners Worry About Their Pilots?, AvBuyer (Dec. 22, 2017).

    In addition, the aircraft owner, L-Holding LLC, apparently did not meet the certification requirements under Part 119 of the Federal Aviation Regulations (FARs). Further, it did not hold an operating certificate under FARs Part 135 to lawfully conduct the Piper Aztec's on-demand commercial flight under Part 135.

    The Florida accident raises important questions for LLCs and their members that conduct illegal charter operations: Will the LLC, if properly formed, shield the members’ liability from occurrences like the Florida accident or civil penalties imposed by the FAA? In a case like the Florida accident, will the LLC’s insurance provide a defense to civil lawsuits and pay for money judgments? Will insurance respond to FAA civil penalties against the LLC, its members, or the pilot?

    Perhaps the most fundamental question for these members or their LLCs is whether, in today’s heightened enforcement environment discussed below, conducting illegal charter operations is worth risking personal wealth to pay a claimant, the FAA, or the Department of Justice (DOJ), and significant legal costs? A similar question exists for any pilot who may lose his or her pilot’s certificate resulting from illegal flight operations.

    Structuring LLCs to Mitigate Personal Liability Risk

    When properly formed and used, an LLC can maintain the shield afforded to members under various state laws. The laws generally limit the members’ personal liability from the LLC's debts, obligations, and liabilities. Although it is difficult, in the Florida accident or comparable situation, it is reasonable to expect that the claimants will try to penetrate the LLC shield to reach members’ personal assets. This may especially be true in the Florida accident if the families confirm the pilot or the LLC operated the aircraft as an illegal charter.

    Spotting Illegal Charters

    Illegal charters come in many forms as discussed by the NBAA's The Risks of Flying With Illegal Charter Operators. Three examples deserve emphasis here: a Part 135 operator does not comply with the FARs’ safety standards, illustrated by the apparent lapse of the pilot’s medical certificate before the Florida accident; a Part 91 operator enters into multiple timesharing or leasing arrangements that constitute disguised, sham charter operations that should be operated as Part 135 flights; or an often misunderstood or ignored infraction under Part 91 where members provide cash for flight operations in flight department companies.

    Flight department companies, typically created in the form of LLCs, exist and function for the single purpose of owning and operating their own aircraft for the benefit of their members and their guests. Owners pay for the aircraft operating costs through members capital contributions or other cash transfers into the LLC.

    These cash infusions fundamentally convert such an LLC into an illegal “commercial operator.” The FAA defines a commercial operator as one that operates an aircraft carrying persons or property “for compensation or hire.”  Under a flight department company structure, any payment into the LLC constitutes illegal “compensation.” 

    If a flight department company and/or its owner let people know that those people can use the aircraft, operated by the company, in exchange for any cost reimbursement to the company, the second fundamental violation likely occurs. The company is likely illegally holding the aircraft out for “hire.”

    Perhaps surprising to many owners/members, unless and until the companies obtain a Part 135 air carrier certificate, both these operations “ for compensation or hire,” simply put, constitute illegal charter operations.

    For example, think of an LLC member who (1) pays money into the LLC for that member’s flights in order supposedly, in part, to create a liability shield for the benefit of the members; (2) offers a friend that she or he is welcome, at the friend’s expense, payable to the LLC, to “borrow” the LLC’s aircraft, including its pilots, for a weekend college visit; (3) collects fuel costs from a passenger to ride along on the owner/sole member’s ski trip; or (4) flies several golfers to a location for a business meeting but charges passengers non-pro-rata shares of the operating costs.

    Some owner/members don’t realize they have created a flight department company or that the normal functions of the company violate the FARs. Others who do know or receive good advice from aviation counsel about the prohibition under the FARs simply ignore or refuse to obey the rules.

    I have heard of comments such as: “I have been running the airplane reimbursements and flights through my LLC for many years without any issues and don’t plan to change;” or “My friend has used his LLC to operate his aircraft without any FAA problems;” or “The LLC ownership is a good way to block personal liability, and these rules won’t be a problem for me or my company.”

    These Illegal charter operators should appreciate that, in addition to the FAA’s own increased enforcement actions, the FAA has powerful industry allies like the National Air Transport Association (NATA), including NATA’s Air Charter Committee, and the NBAA. NATA’s website, titled Avoid Illegal Charter, provides significant resources to explain illegal charter operations and educate consumers, among others, on the dangers of illegal charter operations. NATA also helps the FAA focus enforcement actions against illegal charter operations while promoting the Illegal Charter Hotline, (888) 759-3581, so anyone can report illegal charter operators.

    Aircraft owners and operators can significantly mitigate their risks by asking knowledgeable aviation counsel to conduct a compliance checkup. In completing this task, aviation counsel can confirm that the LLC ownership structure and operations comply with the FARs or, if not, restructure the LLC and/or operations to bring them into compliance.

    In addition, counsel should examine the structuring of the LLC under state law to maximize the protection of the members with special attention on the exposure of a single member in LLCs.

    Imposing Personal Liability for Illegal Charters

    The best structured LLC may not be enough to protect its members from personal liability arising out of illegal charter operations. If members believe the FAA won’t find them, they should take heed; the FAA and the business aviation industry have intensified their scrutiny of, and the FAA has ramped up civil and criminal enforcement actions against, illegal charter operations. For more, see my blog titled AINsight: FAA Actively Pursues Illegal Flight Ops.

    Owners who believe insurance will cover them regardless of violations should think again. Insurance policies will likely not cover civil or criminal penalties assessed by the FAA or other governmental agencies. Further, as underwriters continue to increase insurance premiums to curb their losses on claims payouts, they also may reserve rights not to insure a non-compliant charter business or flight department company or their members. They may also look for policy provisions, such as warranties and coverage exclusions, to deny policy claims involving illegal charter operations.

    Pursuing Assets of LLC Members for Illegal Charters

    As occurs in all aircraft accidents, the FAA and the National Transportation Safety Board (NTSB) launch investigations into the cause(s) of the accident and regulatory aspects of the flight operation associated with the occurrence. If the FAA imposes civil penalties on the LLC or its members exceeding $50,000, the DOJ enters the fray to enforce those civil penalties under FAA Order 2150.3C. And, as noted above, most families file lawsuits against aircraft owners, operators, and others to secure compensation for their losses.

    Even if insurers defend the insured, violators can still expect to pay significant legal fees in the defense of the claims or FAA/DOJ actions. A recent Texas case may provide the FAA and DOJ with an additional tool for assessing civil penalties directly against the LLC members; in other words, they allow the FAA and DOJ to pierce the LLC shield that prevents members from incurring personal liability for the LLC’s debts, obligations, and liabilities.

    My blog, titled AINsight: Piercing the Aircraft LLC Veil, discussed a 2018 Texas Supreme Court case, Texas v. Morello, in which a Texas water agency sued the sole member-employee of an LLC and the LLC for their failure to comply with an environmental clean-up plan relating to the Texas Water Code. The agency imposed punitive damages and fines on the member for approximately $1 million. After my blog published, Mr. Morello asked the U.S. Supreme Court to hear his argument that the Texas agency did not justify the fines imposed on him personally, thereby piercing the LLC shield. On November 19, 2018, the U.S. Supreme Court refused to hear Mr. Morello’s case.

    Given the U.S. Supreme Court decision, the FAA, the DOJ, and other regulatory agencies could use Morello as a legal basis to tap into personal assets of LLC members to pay for civil penalties as happened to Mr. Morello in Texas. Private claimants might also use Morello to sue members based on legal concepts of negligence per se (liability for violations of statutes and regulations that cause harm), reckless disregard for passenger safety or other similar theories of liability under the state laws that govern the case.

    The objective is the same in all cases – to pierce the LLC shield and collect money damages from individual members. As a Texas state case, Morello may not be a game-changer nationally. However, the FAA and DOJcould potentially use Morello to impose personal liability of members for illegal charter operations, especially when the members flagrantly, expansively and continuously disregard the FARs.

    In conclusion, flight department companies and other illegal charter operators should promptly change course to comply with Part 91, Part 119 and Part 135. The idea is simple: Get certified for charter operations and play by the rules. If they fail to do so, members and their companies not only undermine the regulatory framework designed by the FAA to ensure safety in aviation but also snub the business aviation industry, which expects all operators to do what is right.

    This article was originally published on AINonline on July 12, 2019.

  • Tracey Cheek posted an article
    JetNet Sees Mixed Signals for Bizjet Market see more

    NAFA member Paul Cardarelli, Vice President of Sales at JetNet, discusses the current state of the business jet market.

    Business aviation data provider JetNet is fairly optimistic about the state of the business jet market, but sees some warning signs on the horizon, the company said in a state of the business aviation market presentation on Tuesday at EBACE 2019. While GDP has long been associated with business jet usage, JetNet v-p of sales Paul Cardarelli said his company's analysts have noted a bit of decoupling in GDP growth between the U.S., which has been above 3 percent for the past two quarters, and the Euro Area, which has remained flat at 1.2 percent for that span. Cardarelli placed some of the blame on the protracted drama of Brexit, which is estimated to be impacting the UK economy by £19 billion a year, among other factors.

    He noted that the business jet fleet remains “geographically concentrated,” with approximately 61 percent of the world’s business jet fleet based in the U.S., and that the 22,138 business aircraft in service today had 4.5 million cycles in 2018. The last time the fleet was at that level of utilization was around 2005, when the in-service fleet numbered approximately 14,000.

    “So we’re about one-third more aircraft than we were in ’05, and yet we’re operating about the same number of cycles,” Cardarelli noted. “This is one of the things that gives us some concern. We have an oversupply situation and we have underutilization going on.”

    Another metric of the health of the market lies in the preowned segment. An inventory of less than 10 percent of in-service aircraft is considered by many as indicative of a seller's market and, as of the end of March, the numbers according to JetNet’s data were 9.3 percent for business jets and 6.7 percent for turboprops, the lowest levels since before the global economic downturn.

    Yet, the company noted there were 513 retail jet sale or lease transaactions in the first quarter, compared to 641 a year ago—marking a year-over-year decrease of nearly 20 percent. Cardarelli attributes the discrepancy to a variety of reasons, including the partial U.S. government shutdown in January and stock market turbulence. Another factor could be the limited choice in the marketplace as buyers finally jumped in at the bottom of the market and have removed most of the choice aircraft.

    On the new aircraft side, all five of the major business jet airframers have shown an increase in backlogs in the first quarter, an aggregate 5.5 percent rise, with book-to-bill ratios all above one while Embraer and Bombardier are approaching two. “We feel good about that—that’s a good metric for the industry,” said Cardarelli. “We’re always conservative at iQ, we do want to call them as we see them, but we’re actually bullish, particularly for the OEMs."

    Since 2011, JetNet iQ has conducted its quarterly surveys gathering 500 responses in each for approximately 17,000 results from 132 countries. JetNet iQ founder Rollie Vincent shared the latest data from the company’s second quarter survey, which is 85 percent complete. The survey asks respondents to describe the current market conditions for business aviation as either not yet at the low point, at the low point, or past the low point, and establishes a net optimism score by subtracting the first number from the last.

    In the second half of last year, that number hovered around 50 percent, but plummeted to 27 percent in the first quarter of this year, and with the majority of responses received for the second quarter, optimism seems to have eroded further to 24 percent. In North America, more than 50 percent of the respondents either somewhat or strongly believe there is increasing risk for a global economic slowdown in the next 12 months, while in Europe that rate exceeded 70 percent.

    “It’s all across the market, the mood has changed,” said Vincent. “We think this is a caution sign, and it’s going to affect preowned sales first, which we think are coming down.” Also in Europe, nearly 60 percent of the respondents believe to some degree that uncertainty over Brexit has affected their aviation activities.

    The survey typically asks respondents several topical perception questions, and among them this quarter was if they are experiencing difficulties recruiting and retaining aviation-related staff. In North America and Europe, 77 percent and 67 percent agreed from somewhat to strongly that they were, adding more evidence of an industry-wide talent shortage.

    Asked about their belief that all their aircraft would be ADS-B-compliant by the Dec. 31, 2019 deadline in the U.S., enough respondents indicated strongly that they would not, leading the company to speculate that thousands of aircraft could be affected. That could perhaps to a long overdue mass retirement of aging aircraft, Vincent said.

    For the first time in eight years of surveys, JetNet noted the percentage of intent to purchase light jets, which had been as low as 11 percent, has finally exceeded 30 percent, meaning a long-awaited improvement in the segment is under way, fueled by the Pilatus PC-24. That aircraft model earned the most responses to the question “what model were you most interested in for your next purchase?,” beating out the popular Gulfstream G500, G650/650ER and Bombardier Challenger 350 over the past three surveys.

    Vincent updated the company’s 10-year forecast to 7,100 jet deliveries worth $237 billion through 2028. For the first time, the company included the category of supersonic business jets (SSBJ), which he expects will make an appearance sometime around 2026. Based on the survey results, more than 75 percent of the respondents in North America, and nearly 50 percent of those in Europe, believe to some degree that SSBJs will be in service in the next decade.

    This article was originally published by Curt Epstein on AINonline on May 22, 2019.

  • Tracey Cheek posted an article
    Light Twin Sales Lift Pre-owned Helicopter Market see more

    NAFA member, Aero Asset, shares the latest on the pre-owned helicopter market.

    Retail trades of preowned helicopters were up 9 percent across all helicopter configurations and weight classes last year, with the light-twin market leading that increase, according to the inaugural Preowned Helicopter Market Trends report released by newly established Aero Asset.

    Co-founders Emmanuel Dupuy, William Strum, and Valerie Pereira announced the formation of Aero Asset, a new global helicopter brokerage, this week at Heli-Expo 2019. All are experienced helicopter sales specialists who formerly worked for Avpro. Dupuy and Strum are leading sales at Aero Asset, while Pereira, a specialist in aircraft market research, is the director of business development and research.

    “We believe the time is right for an independent, advisory-focused helicopter brokerage,” Dupuy explained. “The preowned market took an upturn in 2018, after several years of flatlining, and we look forward to the trend continuing on an upward curve.” 

    At the same time, the Aero Asset executives released the Preowned Helicopter Market Trends Report for 2018. Based on the firm’s proprietary intelligence and knowledge of the market, the report focuses exclusively on the twin-engine preowned helicopter markets, ranking the best and worst markets in 2018. It also provides analyses of 15 twin-engine helicopter models in the light, medium, and heavy categories, from the Airbus H135 to the Sikorsky S-92A.

    For instance, the report finds the sales for the Bell 429 fleet up 30 percent in 2018 and the supply was down 20 percent, with a retail trading range of $4 million to $5 million. The report called the 429 the sixth most liquid twin in the preowned helicopter market. And it noted that the Leonardo AW139 fleet experienced a 350 percent leap in sales volume, while the supply at 30 units, is up 20 percent year-over-year. Meanwhile, the report is calling the EC225/H225 volume "opaque" and "cloudy," finding a retail trading range of between $1.5 million and $8 million.

    Overall, the report detailed 90 sales of light twin helicopters last year, a 13 percent increase, while 44 medium helicopters traded hands, unchanged from 2017. In the heavy market, three helicopters were tracked as sold in 2018.

    Preowned twin-engine helicopter prices range from sub-$1 million at the very bottom—the Airbus H155/EC155B1 and Leonardo A109E Power—to more than $12 million for the top end marked by the Sikorsky S-76D. Absorption rate—the amount of time it would take to deplete inventory at current sales levels—varied from 1.6 years for light helicopters to 2.8 years for mediums to five years for heavy. This rate was lower year-over-year by double digits across all weight classes, with that for the medium helicopter category down 48 percent, from 4.1 years in 2017.

    “Brokers and dealers cultivate a short view of the markets, leveraged by intel from past deals and best buys available for sale,” said Dupuy. "This data is very refined. This report aggregates 2018 helicopter trading intel and compares it with the previous year and leverages key comparative indicators.” 

    Toronto-based Aero Asset plans to publish its market report quarterly going forward.

    Click here to download the Q1 2019 Preowned Heli Market Trends Report.

    This article was originally published by R. Randall Padfield on AINonline on March 6, 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
    What Is the Best Personal Aircraft to Buy in 2019? see more

    NAFA member Jason Zilberbrand, President of VREF Aircraft Value Reference & Appraisal Services, shares advice on finding the best personal aircraft in 2019.

    When buying an aircraft for personal use, there is a litany of factors that will go into your decision-making. Whether your intentions are to take day trips for the weekend or intercontinental excursions, finding the best personal aircraft to meet these needs will come at wildly different price points.

    In addition, the number of passengers and on-going costs for the aircraft can affect your decision.

    Keep reading for a VREF  breakdown of various examples for the best personal aircraft you can buy in 2019.

    Single Engine

    The most utilitarian and hassle-free aircraft are single engines planes. With price points in the low or sub-six figures, a single-engine plane can get you flying for a low cost of ownership.

    Here are some of the best buys for 2019:

    Pre-Owned Beechcraft Bonanza

    • Price $100k – $375k
    • 765nm range
    • Seating for 6

    Pre-Owned Cessna 206 Stationair

    • Price $100k – $225k
    • 730 nm range
    • Seating for 6
    • Features a large rear “clamshell” door easy load-ins

    Other notable players in this category are the Piper Cherokee Six, Piper Malibu Mirage, and, of course, the trusty Cessna 172.

    Twin Engine

    Pilots enjoy the redundancy or dual engines of a twin. Twins handle larger payloads and faster speeds, as well as faster takeoff and climbing speeds.

    These tend to cost less than high-performance single engines but garner higher ownership costs due to the second engine.

    Examples of deals in 2019:

    Beechcraft Baron 58

    • Price $200k – $1.4 million (new)
    • 1700nm
    • Seating for 6

    Pre-Owned Beechcraft Baron 55

    • Known as the “Baby Baron”
    • Price $75k – $175k
    • Though smaller, it comfortably seats 6 passengers

    Other Notables: Piper Turbo Seneca II, Cessna 310R

    Turbo Props

    Typically known as a “Step-up airplane,” turboprops have taken a huge share of the market from the multi-engine planes of the past. While pilots originally bought twin-engines as a way to make them and their families feel safer, turboprops have made great leaps in sophistication and reliability. Their short takeoff and landing capabilities make dealing with emergencies much easier.

    Turboprops do incur higher purchase prices and operating costs. They are extremely efficient at lower altitudes and slower speeds.

    They enjoy the ability to access smaller airports and runways and are ideal for day trips of 500nm or less (think, Miami to Nassau and back). Be sure to enlist the help of a professional aircraft appraiser because of the substantial jump in price.

    Here are some of the standouts:

    Piper Meridian (2002 – 2015)

    • Price $650k – $1.5 million
    • 1,000nm range
    • Seating for 6 in plush interiors with upgrades

    TBM 700 (1990 – 2005)

    • $750K – $1.5 million
    • 1,350nm range
    • Seating for 6

    Best Personal Aircraft – Jets

    Jets are at the top of the personal aircraft hierarchy. They fly further, faster and with more people than the other categories on this list.

    Jets have massive price tags and ballooning maintenance and hangar fees. But for the business or personal traveler who demands speed and global access, this is the personal aircraft of choice.

    Very Light Jets

    Cessna Citation Mustang

    • “Most bang for your buck” smallest member of the Citation Family
    • Price $1- $2 million
    • 1170 nm range
    • Seating for 5 plus 1 crew

    Eclipse 550

    • The only brand new twin-engine jet for $3 million
    • 1125nm range
    • Seating for 5 plus 1 crew

    Light Jet

    Cessna Citation CJ3 or CJ3+

    • Price $3.75 – $6 million
    • 2,000nm range
    • Seating for 6 passengers plus crew

    Embraer Phenom 100

    • $1.75 – $2.25 million
    • 1,178nm range
    • Seating for 5 plus crew

    The Best Fit

    As mentioned above, finding the best personal aircraft for you is a combination of factors that fit your lifestyle and intentions. Yet, both a hobbyist and a global businessperson can enjoy the freedom that private aviation provides.

    With any aircraft purchase, be sure to reference our reference guide to make sure you have the most accurate data and valuations.

    This article was originally published by VREF on May 2, 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
    Supplemental Lift for Your Business Jet: What's Best for You? (Pt 1) see more

    NAFA member David Wyndham, Vice President with Conklin & de Decker, discusses whether Charter, Jet Card or Fractional Ownership is better option for your supplemental lift. 

    Are there some business travel needs your aircraft can’t fulfill? David Wyndham explores the option of supplemental lift. What is supplemental lift, and how can you use it as an appropriate add-on in your current aircraft operations?

    Supplemental lift may be a logical alternative to your current aircraft. As the term implies, supplemental lift is an add-on to your current operation – it is not a replacement for your current aircraft. What it does is to achieve a means of expanding your operation without adding another aircraft, extra crew, and support.

    It may be that you have a specific need for short-term lift if an aircraft in your operation is undergoing a major maintenance event. Or you may need extra flight hours beyond what your current aircraft can support.

    Alternatively, there may be several unique missions on the horizon for which your current aircraft is unsuitable. Perhaps you simply wish to bridge the gap before acquiring another aircraft as your flight operation grows.

    Thankfully, there is a range of supplemental lift options available that offer a modest number of additional flight hours without the costs associated with actually owning an extra aircraft.

    Within this article, we will consider the following questions:

    • What are aircraft charter, jet cards and fractional ownership?
    • When does supplemental lift make sense?

    What are Aircraft Charter, Jet Cards & Fractional Ownership?

    Aircraft charter enables you to rent an aircraft for a trip. With charter, you pay the entire time the aircraft is flying (including any unoccupied i.e. ‘deadhead’ legs without you aboard). Therefore, charter costs are minimized with round-trip travel. Aircraft charter tends to work particularly well if one or more well-qualified providers operate the aircraft type you need close to your location.

    Jet cards are a form of pre-purchased charter. Some jet card programs are aligned with a major fractional ownership company (such as NetJets). Other providers offer a broker arrangement where they sell you the time and find the qualified operator for you. Most jet card providers offer both one-way and round-trip pricing.

    Fractional ownership enables you to purchase or lease a share of an aircraft in proportion to the additional flying that you plan to do. This may be a good way to bridge the gap between insufficient current aircraft availability and developing sufficient need to justify buying an additional aircraft outright. Operators who purchase a fractional share can choose to sell it back to the provider at the end of the contract.

    When Does Supplemental Lift Make Sense?

    As highlighted through the different options, supplemental lift can be a short- or long-term solution. The hours can vary with your needs. To illustrate, and also highlight how and when supplemental lift makes sense, following are some real-life examples.

    Extended Downtime: One operator I work with has an aircraft that’s almost 12 years old. They fly regularly and the aircraft is fast approaching a major maintenance check and engine overhauls. The avionics suite is outdated and the principal wants to add in-flight cabin connectivity. Additionally, the paint and interior are in need of a refresh.

    Having conducted a financial analysis, the operator concluded that the aircraft value prior to the work being done is lower than they would sell it for. Moreover, the cost of a newer replacement aircraft is more than they wish to spend. The plan, therefore, is for them to complete the overhauls and upgrades at the same time, with an expected downtime of at least four months.

    This means a temporary solution is required that effectively replaces their aircraft for the time it will take to complete the maintenance and upgrades.

    An estimated 120 flight hours will be needed over those four months, and the operator has chosen aircraft charter as the right option to fulfil this demand.

    Fortunately, they’re located in a city with several large charter operators nearby and were able to negotiate a block of hours with a local provider with a top safety rating.

    Expanding Mission Need: A different corporate client recently expanded operations to a distant city and their current aircraft cannot make that trip non-stop. The client estimates flying one trip per month for approximately eight flight hours, representing a 20% increase in their flying activity. To upsize to a larger aircraft would increase the operating budget by almost 90%.

    The cost to buy the larger business jet is nearly three times what their current jet is worth. Over the course of a year, the client would need less than 100 hours flying a longer-range jet and their demand analysis indicates this utilization is likely to remain steady and long-term.

    In addition, avoiding a fuel stop on 20% of the trips wouldn’t be worth the added investment in a new, larger jet. But what if the client were to supplement their operations with added lift?

    The client was able to find a fractional ownership solution to meet their needs at a fraction of the cost of replacing their current aircraft. When they near the end of their current contract, they will reassess their need and budget, revisiting the question of acquiring a larger business jet.

    Growing Operation: One last example is of a flight operation growing at 15% per year. Corporate projections indicate that this rate of growth will continue and there are new departments asking for use of the aircraft.

    In their analysis, the client’s aviation department estimates that they can meet the additional demand for the next 18–24 months by hiring a new pilot and combining a few trips each month. Acquiring another aircraft may take between six and nine months.

    The company hired a consultant who performed an aircraft needs analysis. The report confirmed the aviation department’s internal findings and recommended that a second aircraft be purchased within the year. The report also recommended adding supplemental lift within the next six months to maintain the department’s ability to meet trip requests without any disruption.

    Accordingly, they purchased a jet card offering them the additional projected flight hours. The card program includes price guarantees for 12 months with the initial purchase.

    Simultaneous Travel Needs: One more consideration might be the scenario where you occasionally need simultaneous aircraft. If you anticipate multiple overlapping requests for the aircraft, a supplemental option, such as a charter, jet card or fractional ownership might make sense.

    Next month we will continue our discussion with consideration of how to choose the right aircraft, and then manage the supplemental lift as you grow into another aircraft.

    This article was originally published on AvBuyer on June 21, 2019.

  • Tracey Cheek posted an article
    Aero Asset – Bringing big brokerage practices to the preowned market see more

    NAFA member, Aero Asset, forms new pre-owned helicopter brokerage.

    Three of AvPro’s senior salespeople split off from the group at the beginning of the year to form a new pre-owned helicopter brokerage – Aero Asset.

    Emmanuel Dupuy, William Sturm and Valerie Pereira debuted their new brokerage at HAI Heli Expo in Atlanta in March this year – a brokerage they say brings in the best practices of big business and injecting them into a customer-first independent approach

    “We saw an opportunity to take some of the big brokerage business practices we had learnt and apply them to the helicopter space,” said co-founder Emmanuel Dupuy.

    “We put the client at the heart of everything we do. We’ve invested a lot of resources to make sure the customers have all the information they need to make a good decision – with great intelligence, there can only be a great decision.”

    Just two months after its official launch, Aero Asset had a static display at EBACE 2019 with two helicopters on display. We sat down with Emmanuel Dupuy to discuss pre-owned market trends, what regions are hot, and what we can expect from Aero Asset in the coming years.

    “It (the reception) has been great. Right now, we are juggling listings and closings but also executing on the strategy, building the tools the resources that are going to help us do our job and serve the clients better,” said Dupuy.

    The company is expanding and looking at certain international markets with great interest. Fittingly for its presence at EBACE, the company has hired a salesperson to represent Aero Asset in Latin America – specifically in Mexico City, one of the largest VIP-helicopter markets.

    “60% of our business is in Europe right now. 30% is in the US and the other 10% spread out internationally. Specifically, we are particularly excited about Latin America.

    “In fact, we have just hired a Brazilian salesperson based in Mexico City. He has 20 years of aerospace industry experience. The region has tremendous potential for us and we believe we can make an impact there.”

    Mexico City has the second largest number of helipads of any world city with 200 across the metro. This is second only to São Paulo, Brazil which has 215, with 500 helicopters based there and 2,200 flights per day.

    “It is a market that covers all bases for us. The VIP market is big out there and people are looking for predominantly light-twins while the major oil and gas operators out there are all operating heavy and medium and large twin helicopters. All the helicopter types we deal with are relevant there.

    “We had done deals there prior, but to be successful in Latin America, you need someone there. Business people need to meet face-to-face and they need to feel that you have someone out there representing the region. It is one of the particularities of this market.”

    The Latin American market is also dominated by pre-owned aircraft. Along with selling aircraft, Aero Asset is also writing up reports on pre-owned helicopter market trends. The reports break down the performance of the relevant twin-engine helicopters in the market right now.

    Key trends for 2018 showed a general increase of retail trades of 9% in 2018 year on year over 2017. The strongest growth was seen in the light twin market, which was up 13%, with the best performing model being the EC135.

    The EC135 growth was mainly driven by the EMS market, which accounted for 80% of 2018 purchases. The AW109 Power and AW109 Grand were the second and third most liquid pre-owned helicopter last year respectively.

    Whilst it is early days in 2019, there are definitely some positive signs for pre-owned helicopters.

    “The AW139 market and EC145 B1 market is looking on par with Q4 2018 so that is a good sign. The same number of deals are being done and Q1 was also on par year-on-year with Q1 2019 for the AW139 and the EC145

    “We’re also seeing really solid numbers for Q1 2019 in the AW109 Power and the AW109 Grand and Grand New markets and we are also seeing some dealer activity, so these are all really positive signals.”

    This article was written and published by Alex Baldwin of Helicopter Investor on June 6, 2019.

  • Tracey Cheek posted an article
    Understanding Popular Private Jet Share Options see more

    NAFA member, H. Lee Rohde, III, President and CEO of Essex Aviation, discusses Private Jet Share options.

    Private jet shares are a popular alternative for frequent fliers who want to enjoy the benefits of private aircraft ownership without the longer-term commitment or larger financial investment typical of purchasing a whole aircraft. In this blog, we’ll take a look at some popular private jet share options, as well as pros and cons for each.

    What is a Private Jet Share?

    As implied by its name, a private jet share refers to any private aviation program in which you own or lease a share of an aircraft rather than own it outright. There are multiple private jet share options to choose from, including fractional aircraft ownership, private jet membership or card programs and private jet chartering.

    How Are Private Jet Shares Structured?

    The private jet share structure depends entirely on which program, aircraft model and hours of utilization you require.

    Fractional Ownership
    Those interested in fractional ownership purchase a private jet share of a specific aircraft type and agree to an annual amount of allotted flight hours. Most fractional ownership programs require a minimum share size of 50 hours of flight time per year; the maximum share size is 800 hours of flight time per year, which is equivalent to ownership of the entire aircraft.

    Fractional ownership shares are acquired from the company that operates the aircraft and has a designed shared ownership program and services agreement that all share owners participate in. This company is also responsible for employing pilots and flight attendants, administering maintenance, airport and hangar fees and insurance, which can be attractive to individuals who want to avoid managing the details of full aircraft ownership. Some fractional ownership programs also provide the option to upgrade or downgrade the aircraft size depending on your trip requirements.

    Compared to other private jet share models, fractional ownership doesn’t require you to pay for the hours flown to position the aircraft to your departure point — also known as a deadhead cost. However, though you’ll save on certain costs and repositioning fees, the private jet share model comes with significant upfront acquisition and monthly operational costs. Fractional ownership can be the most expensive private jet share model because it closely replicates outright ownership and involves acquiring a portion of an aircraft. Additionally, although it’s possible to sell fractional shares back to the program provider, these shares tend to depreciate more due to their high level of annual utilization, resulting in lower residual values.

    Membership and Jet Card Programs
    Membership and jet card programs, though often lumped in the same category, are structurally unique. With a membership program, you agree to a fixed cost per hour at the start of the contract and are billed after each flight. You’re also often subjected to either monthly management or annual membership fees. There are two types of jet card programs: a dedicated service with a predetermined number of hours on a specific aircraft type or size category, and a debit card service that enables you to fund an established travel account and select the aircraft category on a trip-by-trip basis with agreed-to hourly rates. For the debit card program, the cost of the trip is calculated after the completion of your trip and deducted from your card program balance.

    Unlike fractional ownership, which operates under FAA Part 91K regulations, membership and jet card programs are purchased through a variety of companies that may or may not have a direct ownership and operate under Part 135 regulations. When evaluating various programs, make sure you understand the relationship between the program provider and the aircraft you intend to utilize. Membership and jet card programs are often better suited for individuals interested in a short-term commitment and require a much lower investment than fractional ownership. Membership and jet card programs can be appealing because they come at a fixed rate, so there’s no need to negotiate the price for each flight.

    One of the drawbacks to membership and jet card programs is that there’s often a longer advance notice requirement to schedule an aircraft. This is less of an issue if you’re the kind of traveler who books their trips well in advance but can be challenging if you often make last-minute travel arrangements, especially during peak periods such as holidays. Membership and jet card programs can also come with additional fees, such as repositioning fees, and the total cost of your trip might include taxi time as well as flight time.

    Private Jet Chartering
    Private jet chartering is an on-demand service that enables you to compare pricing and amenities for various aircraft types and book the one that best meets your travel needs in much the same way as you’d book a seat on a commercial flight. Those interested in chartering a private jet have the option of working with a charter operator or a charter broker, though it’s best practice to work with a private aviation consultant before considering either option. Like membership and jet card programs, this option can be well-suited for those looking for a short-term commitment.

    Chartering is the most popular private aviation option due to the fact that it doesn’t require a significant capital cost upfront or fixed costs that contribute to maintenance and staff salaries — all you have to pay for is the utilization of the aircraft on a trip-by-trip basis. What you save on cost with chartering, however, you may need to trade for non-guaranteed availability and some due-diligence of the provider. It can sometimes be challenging to find an aircraft that meets both your specific needs and your schedule, so you might be forced to choose between one or the other.

    Private Jet Share Models: A Breakdown

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    This article was originally published by Essex Aviation Group on their blog.  

  • 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
    Greenberg Traurig Joins National Aircraft Finance Association see more

    FOR IMMEDIATE RELEASE


    FORT LAUDERDALE, Fla.– Aug. 1, 2019 –The National Aircraft Finance Association (NAFA) is pleased to announce that global law firm Greenberg Traurig, LLP has joined its professional network of aviation service providers. 

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

    Greenberg Traurig’s Business Aviation Practice represents owners and operators of business aircrafts, financial institutions, leasing companies, corporations, airlines, and other aviation-related businesses on a variety of finance, leasing, commercial, and related corporate matters. The team is skilled in advising both domestic and foreign airlines, lessors, and lenders on aircraft, engines, and parts financings; purchases and sales of aircraft and aircraft portfolios; equipment leasing matters; as well as airline investments and other aviation-related commercial and operational matters. Attorneys capitalize on the firm’s global resources by working closely with restructuring, tax, private wealth, antitrust, governmental affairs, intellectual property, environmental, and labor and employment colleagues to develop multifaceted strategies that meet clients’ aviation needs.

    Business aviation attorney Edward Kammerer, a longstanding contributor to and recent board member of NAFA, recently joined Greenberg Traurig as a shareholder. He advises the business aviation community on a wide range of transactions and issues, with a special focus on aircraft acquisitions and finance. With 40 years of experience, he represents major corporations, mid-sized companies, family offices, corporate executives, entrepreneurs, and business owners, helping them to acquire, operate, finance, and sell private aircrafts. Kammerer has previously served as in-house counsel for three leading equipment finance companies, including affiliates of two major banks and one leading insurance company. He had responsibility for the development of standard form financing documents and approved documentation of inbound and outbound syndicated secured financings. Kammerer is admitted in New York, Rhode Island, and Connecticut. 

    About Greenberg Traurig: Greenberg Traurig, LLP(GT) has more than 2,100 attorneys in 41 offices in the United States, Latin America, Europe, Asia, and the Middle East. GT has been recognized for its philanthropic giving, diversity, and innovation, and is consistently among the largest firms in the U.S. on the Law360400 and among the Top 20 on the Am Law Global 100.  Web: http://www.gtlaw.com Twitter: @GT_Law.

    About NAFAThe 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; improving the industry's service to the public; and 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
    OIG Reports on FAA Registry Update - What Does It Mean? see more

    NAFA member, Debbie Mercer-Erwin, President of Wright Brothers Aircraft Title, discusses the OIG, the FAA Registry Update, and what it means for the aviation industry. 

    The Situation

    There are changes ahead that will modernize the Federal Aviation Authority (FAA) – bringing it up to date with the latest technology and security measures. One of the key updates will be to the registry system, which is vital for ensuring aircraft are legally owned, maintained, and operated.   

    The deadline for the huge overhaul is now October of 2021, which doesn’t seem that far away. The Office of the Inspector General (OIG) recently issued a 29-page report – “FAA Plans to Modernize Its Outdated Civil Aviation Registry Systems, but Key Decisions and Challenges Remain” – regarding the progress the FAA is making in order to meet the modernization mandate. 

    The OIG delved into what they think the FAA needs in place to complete the required upgrade on time – their report put into question whether it could be accomplished, stating: “The Registry’s systems are outdated, and FAA has yet to develop a detailed plan for modernization.”

    The FAA’s plans are not the only consideration in the timeframe though, given the Congress factor. Because “the regulations that govern aircraft registration do not reflect current technology or business practices”, modernizing the FAA’s registration system will require rulemaking by Congress, which can take some time.

    A Modern System

    This is a significant update to the Registry – many provisions were implemented with the Reauthorization Act of 2018 (HR 302) – which Wright Brothers Aircraft Title covered in more depth in Highlights of the 5 Year FAA Reauthorization Act.

    The new registration system, Civil Aviation Registry Electronic Services (CARES), “is expected to streamline processes, allow for the submission of electronic applications and forms, improve controls, automate registration processes, and improve online data availability” according to the FAA. Its key aims are:

    • Web-based access to all public data. For the first time in history, the general public will be able to view FAA records online in real time. Currently, what isn’t already electronically maintained is held in the Public Documents Room (PDR) available for those who have access. Any electronic records are only in real time via the computers at the PDR – outside access is limited to information that is updated once daily.

    The modernization mandate includes digitizing all aircraft registration documents for real-time, public and web-based access, which means phasing out the PDR at the FAA. Furthermore, using the PDR will incur a fee if the business could have been conducted by electronic means as efficiently. 

    • Automation of application services (processes and procedures). For the first time in history, the general public will also be able to file any document electronically. Most aircraft registration functions still require paper documents that are manually scanned and reviewed by Registry examiners. Digitizing and automating the registration process means the role of FAA examiners will change, becoming more high-level. 

    In Order to Proceed

    Detailed estimates of technical and operational requirements for the new system are vital right now – anticipating the rulemaking, cost and schedule that will be necessary to successfully complete the expansive project. Some key questions need to be answered:

    What are the new components/upgrades needed in the new system? The FAA is considering: automated approvals for low-risk applications; automated verification of fraudulent or incorrect submissions; additional security controls such as crosschecking information with non-agency entities; the registry structure, including combining aircraft and airmen systems; and matters of data storage with a cloud- or server-based system.

    How will the FAA fund the new system?It hasn’t been decided yet – funding modernization projects usually comes from its facilities and equipment (F&E) account, but they may be able to use money from its operations and maintenance (O&M) account. This must be decided before it becomes a part of the agency’s budget.

    What rulemaking via Congress is necessary in order to proceed?The FAA will have to develop a rulemaking that revises current regulation and allows for the electronic registration of aircraft –to improve controls, strengthen requirements, and implement digital signatures and electronic payments – a complete outline of the new system is needed beforehand to know exactly what rules to change 

    Now What? – The Challenges

    The OIG report contained four main recommendations to the FAA. The FAA accepted and outlined a schedule for implementing them: 

    1. Develop and implement timeline for making key decisions regarding CARES by May 31, 2019. 
    2. Define desired capabilities of CARES by Dec 31, 2019
    3. Develop and implement a procedure to obtain industry feedback by Oct 31, 2019. 
    4. Develop and implement a plan for maintaining real-time access to data by June 30, 2019.

    There are challenges to face though, including: the transfer of a huge amount of data (with a lot of outdated/large files) to a new system; meeting the needs of registry users – aircraft title companies, financial institutions, aircraft manufacturers, airmen, other government agencies etc. – to ensure the operation of aircraft worldwide; and addressing workforce issues arising from role changes.

    The Transition & After

    The OIG has concerns, but if the FAA stays on track with this schedule, they can meet the October 2021 deadline, barring delays with Congressional rulemaking. 

    Updating and modernizing the new system will be a great improvement, but will not fully alleviate all of the pitfalls to closing yourself that we outline in our blog, Can’t I Handle My Own Aircraft Closing?. It will still be important to hire a company that knows the ins and outs of the FAA system to avoid costly errors that could take time and money to correct.

    Ultimately, the changes ahead will modernize the FAA’s registry system, helping to bring the aviation industry up to date in technology and security measures. There is significant work to do, but we’re confident that every entity involved in this important endeavor will fulfill expectations. 

    This article was originally published by Wright Brothers Aircraft Title on their blog on July 16, 2019.

  • Tracey Cheek posted an article
    Used Aircraft Maintenance Analysis – June 2019 see more

    NAFA member, Tony Kioussis, President of Asset Insight, shares the June 2019 Used Aircraft Maintenance Analysis.

    Average Ask Prices for Asset Insight’s tracked fleet decreased in June to just above the 12-month low figure while asset availability rose near to April’s YTD high. Tony Kioussis explores which models were impacted most.

    Asset Insight’s June 30, 2019 market analysis covering 96 fixed-wing models and 1,680 aircraft listed for sale, revealed a Quality Rating only slightly better than the 12-month worst figure, but remained within the ‘Very Good’ range after decreasing from 5.212 to 5.196 on a scale of -2.5 to 10.

    At the same time, our tracked fleet’s Maintenance Exposure figure (an aircraft’s accumulated/embedded maintenance expense) improved 3.1% last month, and 1.1% for the second quarter of 2019.

    June’s Aircraft Value Trends

    The average Ask Price for Asset Insight’s tracked fleet fell 1.1% in June, as all four groups lost ground:

    • Large Jet values posted a new record low figure, decreasing 5.5% in June and 8% during Q2;
    • Medium Jets lost 1.3% over the last 30 days but registered a 7.5% overall increase during Q2;
    • Small Jet values decreased 1.2% for the month and 1.8% for Q2; and 
    • Turboprops suffered their third consecutive monthly Ask Price decrease, posting a record-low figure with a 1.6% reduction, and a total decrease of 2.4% during Q2.

    June’s Fleet for Sale Trends

    The total number of used aircraft listed for sale within Asset Insight’s tracked fleet increased by 27 units in June.

    • Large Jet inventory increased 5.9% (21 units);
    • Medium Jet inventory increased 1.2% (6 units);
    • Small Jets was the only group whose inventory decreased (0.5%, or 3 units); and
    • Turboprops increased 1.2% (3 units).

    June’s Maintenance Exposure Trends

    Maintenance Exposure (an aircraft’s accumulated/embedded maintenance expense) for June’s inventory fleet mix improved 3.1%, decreasing to $1.4m from May’s $1.45m. Results for each of the four groups were as follows:

    • Large Jet maintenance exposure rose (worsened) 0.2% to remain just above the 12-month low figure. For Q2 the maintenance exposure improved 7.1%;
    • Medium Jet exposure fell (improved) 4% in June and 1.4% during Q2;
    • Small Jets posted a dramatic 11.4% reduction (improvement), but maintenance exposure ended Q2 6.7% higher;
    • Turboprop maintenance exposure increased (worsened) 2.5% in June and 6.3% during Q2.

    June’s ETP Ratio Trend

    Based on June’s maintenance exposure and ask price changes, the average ETP Ratio figure decreased (improved) to 65.4%% from May’s 69.8%, with all but the Turboprop group contributing to the improvement. Why is this information important…?

    The ETP Ratio calculates an aircraft's Maintenance Exposure as it relates to the Ask Price. This is achieved by dividing an aircraft's Maintenance Exposure (the financial liability accrued with respect to future scheduled maintenance events) by the aircraft's Ask Price.

    As the ETP Ratio decreases, the asset's value increases (in relation to the aircraft's price). ‘Days on Market’ analysis has shown that when the ETP Ratio is greater than 40%, a listed aircraft’s Days on Market increase (in many cases by more than 30%).

    So, for example, aircraft whose ETP Ratio exceeded 40% during Q2 2019 were listed for sale an average 71% longer than aircraft whose Ratio was below 40% (226 days versus 386 days on the market, respectively).

    By comparison, during Q1 2019 aircraft whose ETP Ratio exceeded 40% took 62% longer to sell (237 versus 384 Days on Market).

    How did each group fare during the month of June?

    • For the first time ever, Large Jets posted the lowest (best) ETP Ratio at 52.5% (which was also the group’s 12-month best figure);
    • Turboprops were not in first place for the first time since Asset Insight has been keeping records, due to the group’s all-time highest (worst) ETP Ratio at 56.6%;
    • Small Jets were third with a Ratio of 68.8%; and
    • Medium Jets improved slightly by decreasing to 75.2%.

    Excluding models whose ETP Ratio has remained over 200% during the previous two months (considered outliers), following is a breakdown of which individual business jet and turboprop models fared the best and worst during June 2019.

    Most Improved Models

    All of the ‘Most Improved’ models posted a Maintenance Exposure decrease (improvement). Interestingly, the Bombardier Learjet 31 did not experience an Ask Price change, while the Bombardier Learjet 35A, Cessna Citation ISP and Cessna Citation II experienced decreases of -$46,073, -$1,690 and -$30,399, respectively. Only two models posted price increases. They were:

    • Cessna Citation V Ultra   +$179,385
    • Bombardier Learjet 45 (APU equipped) +$395,875

    Most Improved Business Jets and Turboprops - June 2019

     

    Bombardier Learjet 31

    The Learjet 31 leads our ‘Most Improved’ list after placing second from the bottom on May’s ‘Most Deteriorated’ list. Although no aircraft traded in June, the model captured this spot complements of a Maintenance Exposure decrease (improvement) for the listed fleet that exceeded $226k.

     

    Nevertheless, while only four aircraft (11.5% of the active fleet) are listed for sale, the asset’s 118.6% ETP Ratio holds about the same minimal hope for sellers during the coming months as it did in June.

    Bombardier Learjet 35A

    In terms of a statistical recovery, it doesn’t get much better than the Learjet 35A’s leap from worst on May’s ‘Most Deteriorated’ list to the model’s ranking in June – and it’s all thanks to a Maintenance Exposure decrease exceeding $265k (a figure that overshadowed a substantive ask price decrease).

    One aircraft transacted in June, and two joined the inventory fleet to increase that number to 43. That only represents 8.6% of the active fleet, but the aircraft’s ETP Ratio (170.3%) is unlikely to find buyers for too many sellers.

    Cessna Citation ISP

    Three aircraft transacted in June, three were withdrawn from the market, and three were added to an inventory mix that now totals 53 units (19.9% of the active fleet). The model earned its way onto the ‘Most Improved’ list through a Maintenance Exposure reduction exceeding $131k, and the inventory fleet also posted a slight Ask Price decrease.

    The resulting ETP Ratio – approaching 102% - combined with high availability of this well-aged fleet is unlikely to generate sudden purchasing exuberance.

    Cessna Citation II Private Jet

     

    Cessna Citation II

    From May’s ‘Most Deteriorated’ list to June’s ‘Most Improved’ grouping, the Citation II’s reversal of fortune appears impressive – until you start to peel back the technical onion: No trades occurred during the month of June; the asset’s Ask Price dropped over $30k; 94 aircraft are listed for sale (16.8% of the active fleet); and the ETP Ratio stood at 109.1%, even after a Maintenance Exposure decrease approaching $148k.

    While a 17.7% one-month ETP Ratio decrease technically earned the model a place on this list, it’s unlikely to aid sellers seeking to dispose of a Citation II.

    Seller Advice: Carefully consider all offers, as prospective buyers will be few in number and are unlikely to be negotiation motivated.

    Cessna Citation V Ultra

    Sellers of this model have some opportunities, especially if their aircraft’s engines are enrolled on an Hourly Cost Maintenance Program. No aircraft transactions were posted for the Citation V Ultra in June, but one unit was withdrawn from the inventory and three were added, resulting in 26 aircraft listed for sale (8.4% of the active fleet).

    With the model’s average ETP Ratio falling below 65% by virtue of a Maintenance Exposure decrease exceeding $89k and an Ask Price increase exceeding $179k, both buyers and sellers have an opportunity to structure transactions offering good value.

    Bombardier Learjet 45 (APU-equipped)

    As with three other models on June’s ‘Most Improved’ list, we captured no transactions during the month of June. The 17 aircraft in inventory, when added to listed Learjet 45 units that are not APU-equipped, represent approximately 10.8% of the model’s active fleet.

    With the model experiencing a Maintenance Exposure decrease exceeding $67k, along with a sizeable Ask Price increase, the resulting average ETP Ratio should make many listed units (especially those enrolled on an engine HCMP) quite marketable – assuming a willing buyer can be located.

    Most Deteriorated Models

    All but two models on June’s ‘Most Deteriorated’ list (the Hawker Beechjet 400 and Hawker 800A) experienced a Maintenance Exposure increase (deterioration), and all six asset types posted Ask Price decrease, as follows:

    • Hawker Beechjet 400   -$125,250
    • Gulfstream GIV-SP (MSG3)  -$947,500
    • Cessna Citation V 560  -$7,538
    • Hawker 800A    -$73,714
    • Beechcraft King Air 350 (Pre 2001) -$97,019
    • Beechcraft King Air C90  -$21,228

    Most Deteriorated Business Jets and Turboprops - June 2019

     

    Hawker Beechjet 400

    The model earned the ‘Most Deteriorated’ position for June through a Maintenance Exposure increase exceeding $11k and an Ask Price reduction exceeding $125k. Only four aircraft are presently listed for sale (10.1% of the active fleet), and two aircraft traded during the past 90 days.

    However, at nearly 152%, the model’s ETP Ratio is too high for even engine Hourly Cost Maintenance Program coverage to help much on the valuation front – although it may make the asset slightly more appealing.

    Gulfstream GIV-SP (MSG3)

    We were somewhat surprised to find this model on the ‘Most Deteriorated’ list, but it earned its way here through a $570k Maintenance Exposure increase along with an Ask Price decrease approaching $945k. One aircraft traded in June and the seven remaining in inventory represent only 8.6% of the entire GIV-SP active fleet.

    As we have cautioned in previous reports, whenever a limited number of units are listed for sale, changes to one or two assets can radically alter the view. In this case, only two aircraft are posting an Ask Price and one asset dropped its price by nearly 22% in June.

    This model may be on the ‘Most Deteriorated’ list, but with an ETP Ratio of 60.3%, and with many units enrolled on engine HCMP, many sellers should have the opportunity to entertain reasonable offers.

    Gulfstream GIV-SP Private Jet

     

    Cessna Citation V 560

    Two units transacted in June, and the 27 inventory assets represent 10.2% of the active fleet. The model’s Maintenance Exposure increased nearly $117k in June, while value decreased as a result of two sellers lowering their Ask Price.

    The problem here is the aircraft’s economic usefulness and its ETP Ratio – neither of which is assisting its marketability.

    Hawker 800A

    The single trade we uncovered during the month of June left 40 aircraft listed for sale (16.4% of the active fleet). The model actually posted an almost $33k maintenance exposure decrease in June, but that was overshadowed by an Ask Price decrease of more than twice that magnitude.

    The real problem affecting sellers of these assets is how far prices have fallen leading to the model’s 188.1% ETP Ratio. Since most of this fleet is enrolled on engine HCMP, there few levers (other than price) that sellers can engage to help them compete for the limited number of buyers.

    Beechcraft King Air 350 (Pre 2001)

    The King Air 350 was another model we were surprised to see on this list, especially since its ETP Ratio is 44.4%. However, price reductions to a couple of listed assets, along with a Maintenance Exposure increase approaching $138k earned the asset its recognition.

    Three units traded in June and the 21 aircraft listed for sale now represents 5.3% of the active fleet. Many sellers should be well-positioned to negotiate a decent price, while many buyers will find sufficient selection to maintain the model’s fairly robust trading environment.

    Beechcraft King Air C90

    The story is a little different for the King Air C90, and we recorded no trades for the month of June with one addition to inventory. With 50 aircraft listed for sale (13.1% of the active fleet), buyers hold the stronger hand.

    The King Air C90 earned its spot on this list through a Maintenance Exposure increase approaching $18k and an Ask Price drop exceeding $21k that, combined, raised the model’s ETP Ratio past 124%.

    Considering that we’re dealing with aircraft aged between 37 and 48 years, the ETP Ratio is unsurprising. What is surprising is the sudden deterioration this relatively popular model has experienced.

    The Seller’s Challenge

    It is important to understand that the ETP Ratio has more to do with buyer and seller dynamics than it does with either the asset’s accrued maintenance or its price. For any aircraft, maintenance can accrue only so far before work must be completed.

    But as an aircraft’s value decreases, there will come a point when the accrued maintenance figure equates to more than 40% of the aircraft’s ask price. When a prospective buyer adjusts their offer to address this accrued maintenance, the figure is all-too-often considered unacceptable to the seller and a deal is not reached.

    It is not until an aircraft undergoes some major maintenance that a seller is sufficiently motivated to accept a lower figure, or a buyer is willing to pay a higher price and the aircraft transacts, ultimately.

    A wise seller needs to consider the potential marketability impact early maintenance might have on their aircraft, as well as its enrollment on an Hourly Cost Maintenance Program where more than half of their model’s in-service fleet is enrolled on HCMP.

    Sellers also need to carefully weigh any offer from a prospective buyer against the loss in value of their aircraft for sale as the asset spends more days on the market awaiting a better offer while simultaneously accruing a higher maintenance figure.

    More information from www.assetinsight.com

    This article was originally published in AvBuyer on July 17, 2019.