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PNC Aviation Finance

  • NAFA Administrator posted an article
    COVID-19 Opened the Door to Private Jet Ownership see more

    NAFA member, PNC Aviation Finance, discusses how business travelers and some individuals have bumped up against the limits of charter and fractional private aircraft services and are now pivoting to ownership.

    It's no secret that 2020 changed the landscape of the aviation industry. According to data from the Los Angeles Times[1], 2020 forecasts show that this will be the worst year in the history of commercial aviation with the industry poised to post a net loss of $84.3 billion. Consumer air travel revenue is expected to drop from $876 billion in 2019 to $434 billion in 2020. Initially many individuals considered charter services or fractional shares like JetLinx and NetJets but quickly ran up against usage limits and health concerns as the planes are still shared. As a result, more people are considering direct ownership. Airline brokers have noticed a significant uptick in business. "We're on pace to have one of our best years ever," says David G. Coleman, of Duncan Aviation a private aircraft sales, brokerage and consultancy.[2]

    Key Insights

    • Charter and fractional shares can lower risk compared to commercial airlines but they aren't risk free. Private ownership provides end-to-end control of cleaning, crew health and safety checks as well as limited use of the aircraft.

    • Aviation finance is a fragmented industry. It's important to engage veteran professionals who understand aircraft mechanics as well as financing options.

    • Individuals interested in owning an aircraft should have a clear understanding of the aircraft they are purchasing and be prepared to provide that information to lenders as well. Leasing is also an option, but individuals will want to make sure they've planned for any additional costs and are also well versed in the terms of their lease.

    Charter and Timeshare Services See a Short-term Boost

    While surging in popularity, many corporate travelers are realizing that chartered and shared services only offer limited flexibility in terms of schedule and personal safety standards. "What we're talking about is still a form of mass transit," says Jeff Wieand of Boston Jet Search, a private aircraft broker and consultancy.[3]"There are fewer people involved but the questions remain the same - are they cleaning the plane in between? When was the staff tested? Individuals in these kinds of arrangements don't have much control over the aircraft or the process. The lack of control was a driver toward ownership before the pandemic and more so now."

    Charter and timeshare services also require passengers to book in advance just like conventional travel, which may result in a bit of jostling if your travel schedule doesn't already line up with that of the service provider. While this may not matter much during a normal week, scheduling issues could become especially acute during high travel periods like around the holidays or ahead of virus lockdowns when many people are trying to get to more remote locations.

    Pivot to Ownership

    Historically, owning an aircraft was an all-cash process with a naturally limited audience. But as access to capital has improved, aircraft costs have come down and interest rates have remained low, aircraft ownership is possible for more people.

    "To my mind, what has happened with the pandemic really accelerated trends that were already happening in the private aircraft market. As major carriers continue to cut back on services, if you're someone who needs to be on the road a lot it's a problem," says Coleman. "What we're really in the business of is giving people their time back. And now, with growing health concerns we're helping them find an option that eliminates more of the risk."

    Navigating the Private Aircraft Marketplace

    There is a robust secondary sales market within aircraft that allows people to invest in pre-owned planes that are in working condition and on established maintenance programs that lenders are willing to underwrite. New planes are also available and financeable.

    For those that are new to ownership, both Coleman and Wieand suggest that it's important to work closely with veteran aviation professionals that can correctly assess the plane itself and the financing options.

    "This isn't like buying a car or a house where you can just compare across and get a sense for what things generally cost," explains Coleman. "You really need to understand the life of the aircraft in terms of where it is coming from, the state of the equipment, and maintenance schedules. And, you have to understand that not every bank is going to finance so you're going to want to engage with brokers and financing almost before you choose the plane so that people are on the same page early."

    Avoid Common Leasing and Owning Aircraft Pitfalls

    For those that want to invest in aircraft ownership, they can choose to lease their own planes or buy them outright. The financing considerations for both options differ.

    Leasing requires careful financing. With a lease, it's important for individuals to understand that they are going to be locked into an aircraft for a period of time even if problems with the aircraft arise. Wieand suggests that it's important to consider the potential for those additional costs when determining whether a lease makes the most sense. A close read of the lease terms is also a good way to ensure that there aren't any surprises if problems arise or if someone needs to break the lease for any reason.

    Focus on alignment first and financing second when taking out a loan. Taking out a loan to cover the cost of an aircraft can remove some obstacles like being locked into a lease period, but individuals will make sure that they are working with well respected financing teams that are familiar with these kinds of transactions. Coleman notes that if you're financing before you buy, lenders will typically want to be clear on the results of a pre-buy inspection so that there aren't any discrepancies with aircraft components or functionality. Appraisals and inspections can vary widely provider to provider so potential owners can avoid problems by working with appraisers and inspection teams that the lender is already familiar with and trusts. Coleman adds that some lenders will not finance specific types of planes so it is important to make sure that individuals align their desires with a finance team that is willing to support them.

    "I have seen people get into situations where they find out that they can't get the financing they were counting on because they didn't do the pre-work," Coleman says. "A seasoned aviation finance team will work closely with you on finding solutions but it's best when they are included early on in the process."

    Ready to Help

    PNC Aviation Finance offers knowledgeable financing solutions to make private aircraft ownership possible and affordable.

    We offer custom-tailored financing packages based on business needs and circumstances. Our experienced aviation finance team understands and has extensive knowledge regarding private aircraft ownership requirements, FAA, insurance, operating leases, etc.

    We can help you look at the implications of each option and help you decide on the best option for you or your business.

    Learn how PNC Aviation Finance can help you fly higher by visiting pnc.com/aviation.


    Sources
    1. Los Angeles Times (July 10, 2020) The rich are flying again -- in the comfort of their private jets - https://www.latimes.com/business/story/2020-07-10/charter-private-jet-flight-covid-19-coronavirus
    2. CEO David G. Coleman, Duncan Aviation (November 2020) Interview
    3. CEO Jeff Wieand, Boston Jet Search (November 2020) Interview


    This article was originally published by PNC Aviation Finance on December 17, 2020.

  • NAFA Administrator posted an article
    A Capital Option see more

    NAFA members, Keith Hayes, PNC Aviation Finance, and Lou Seno, JSSI, discuss operating leases in the latest Business Aviation Advisor podcast.

    It’s time to think about rebuilding your business.

    And doing so as soon as it’s safe will require traveling via business aircraft, to reconnect personally, face-to-face, with your key customers, allies, and associates.

    It also may require redeploying your capital to fund those rebuilding efforts. Using an operating lease to finance your aircraft can help you do just that.

    Listen as Keith Hayes, PNC Aviation Finance Senior Vice President, and Lou Seno, JSSI Chairman Emeritus, detail how financing a new aircraft – or refinancing your current one – via an operating lease enables you to devote more capital to your core business.

    When there’s more to be said than space and copy deadlines allow, you can rely on the Business Aviation Advisor Above and Beyond podcasts to get you the information you need, to help you make the most of your aviation investments.

    Thanks for reading, listening – and flying safely!

    Listen to Podcast here

    This podcast was originally published by Business Aviation Advisor on May 18, 2020.

  • Tracey Cheek posted an article
    Private Aircraft Ownership - A More Productive Method of Business Travel. see more

    NAFA member, PNC Aviation Finance shares the advantages of private aircraft ownership.

    Private aircraft ownership can often invoke images of celebrities jet-setting to exotic locations around the world. In reality, purchasing a private aircraft can save money and offer enhanced opportunities for corporations and businesses owned by high-net-worth individuals.

    High-net-worth individuals and corporate executives want to save time and travel quickly to conduct business.

    Private and business aircraft ownership can have a positive impact by allowing executives to set their own schedules and grow their business without being at the mercy of commercial airlines. This advantage can save money and could potentially offset the cost of the private aircraft in terms of cost savings, the ability to generate additional business and enhanced travel opportunities.

    Rather than viewing the ownership of a private aircraft simply as an expense, in the right situation, it might actually provide a competitive advantage. 

    Access to Underserved or Remote Locations

    The ability to access locations that are “off the beaten track" and not adequately served by regular commercial airline service can be a key advantage of using private aircraft. If your company does business in these types of locations, using a private aircraft can save time wasted in airports, changing flights and renting a car to drive to your ultimate destination[1].

    If restricted to commercial schedules, it may be difficult to justify visiting prospects, clients or company locations in these areas on a frequent basis. This can negatively impact your business and affect potential growth opportunities.

    Privacy and productivity

    On a private aircraft, business can continue without the presence of strangers sitting in the next seat. This appeals to high-net-worth individuals who have privacy and security concerns that can't be guaranteed on commercial flights and at bustling airports.

    In some business situations, executives want to ensure their privacy if they are traveling to a sensitive business meeting involving a confidential transaction, such as a potential acquisition or opportunity with a potential new customer[2].

    A private aircraft offers an environment conducive for working, conducting meetings with other employees or business associates who are also on the flight or transacting business via phone during flight. This additional productivity can be invaluable as preparation can enhance the chances for success in any business situation.

    For business executives, the cost of the flight and related expenses to maintain the aircraft can be more than offset by the convenience of being able to fly to a meeting on your own schedule. Sometimes, just showing up can be what it takes to land a new customer.

    Tax Advantages and Issues

    Purchasing a private aircraft can offer tax advantages, but this acquisition can be more complex than buying a piece of capital equipment or real estate.

    A key issue is the ability to justify that a private aircraft is an ordinary and necessary business expense and not just a luxury or convenience purchase[3].

    If an argument can be made that business is normally conducted in locations that have limited or no commercial service, a private aircraft is easier to justify. It can also apply if travel often occurs at the spur of the moment or at irregular times.

    Using a private aircraft to address legitimate privacy and security concerns for executives and employees can be another justification.

    There can be a number of taxes, such as potential sales and use taxes, associated with private aircraft ownership, one being how the aircraft is owned. Ownership by a separate entity other than the main operating business can lead to tax implications.

    Before purchasing a private aircraft, it is wise to have your tax and legal advisers conduct a thorough review in terms of the best ownership structure and the anticipated usage to ensure the best possible tax outcome[3].

    Additionally, there are distinct rules regarding the separation of business and personal use of the aircraft. This can extend to personal use as a perk for employees and even in the case of a spouse flying on an executive plane without a business purpose.

    It's important to establish rules for usage and to account for travel using a consistent process that meets both internal and external reporting requirements.

    The diligent maintenance of usage records and the reason for each passenger being on each flight is critically important[4].

    If properly structured and used, the cost of private aircraft ownership can be partially offset by tax benefits that can reduce the cost of ownership.

    We Can Help

    PNC Aviation Finance offers knowledgeable financing solutions to make private aircraft ownership possible and affordable.

    We offer custom-tailored financing packages based on business needs and circumstances. Our experienced aviation finance team understands and has extensive knowledge regarding private aircraft ownership requirements, FAA, insurance, operating leases, etc.

    We can help you look at the implications of each option and help you decide on the best option for you or your business.

    Learn how PNC Aviation Finance can help you fly higher by visiting pnc.com/aviation.

    This article was originally published by PNC Aviation Finance.

  • Tracey Cheek posted an article
    3 Ways to Finance your own Corporate or Personal Aircraft see more

    NAFA member Keith Hayes, with PNC Aviation Finance, shares ways to finance your own corporate or personal aircraft.

    Corporate and personal aviation has returned, after being grounded, or at least stalled, in the wake of the Great Recession. Rising financial markets, growing corporate earnings, a strong U.S. dollar, and increasing consumer and business confidence are driving demand for private aircraft. Faced with crowded airports, jammed-packed commercial aircraft, and ever-present delays, high-net worth individuals and corporate executives alike are increasingly turning to private aviation to relieve the time constraints and delays of commercial flying and to take advantage of the myriad of smaller airfields located closer to their final destinations.  Before ringing the airplane broker and kicking the tires, consider these financing options:

    Traditional Loans

    No different than your smaller purchases – like houses, cars and boats – your traditional aircraft loan can be fixed rate or floating rate. Some financial institutions offer a hybrid which features a floating rate loan with the option to buy a “swap.” In other words, you can lock in your rate and benefit from early payoff and interest rate increases. Not a bad idea in a rising rate environment. Traditional loans can be structured for as short as 30 months or as long as 120 months with amortizations as long as 240 months. Just keep in mind, the longer the terms, the higher the interest rate.

    Asset Based Loans

    Over the last fifteen years, this type of financing has become an increasingly popular option for individuals and businesses seeking aircraft ownership without making financial disclosures or guarantees. Only a select number of organizations offer this product, but it has a number of benefits, including:

    • No financial disclosure or covenants – Truly hassle-free asset based financing.  No need to forward years of tax returns and K-1’s or to disclose financials of a privately owned company.
    • No or limited personal guaranties – This may be very important for companies that have bonding requirements or covenants limiting the amount of debt or guaranties than a company may incur. There may be partners involved in the ownership and the owners may be unwilling to sign on the other partner’s debt.
    • Non-recourse – If the borrower defaults, the lender can seize the plane, but cannot seek out the borrower for any further compensation.

    Aircraft Leases

    As with other types of large equipment, businesses as well as individuals may elect to lease an aircraft as an alternative to purchasing.  An individual or business may have multiple reasons to lease instead of purchase, including cash flow considerations, federal income tax considerations, sales tax considerations and accounting treatment. There are several types of leases with the choice often determined by how the aircraft will be used:

    • Non Tax Lease – The lessee (the bank or other entity granting the lease) owns the asset for tax purposes. Typically, this option is put in place for off-balance sheet treatment. The lessor will use the aircraft only for business and has an “appetite” for tax depreciation, therefore, can take advantage of the tax benefits.
    • Tax Lease – The lessor owns the asset for tax purposes, realizing the tax benefits such as the depreciation of the aircraft. Because the lessor takes the tax benefit, the lessee is typically offered a more favorable interest rate.

    Where do you start the journey to find a lender? Often, borrowers start their financing search where they have an existing banking relationship. However, that may not always be your best financial option.

    General aviation industry knowledge should be a critical criteria for your lender. For example, does your lender have expertise with the FAA requirements? Are they aware of new regulations on the horizon that could impact your purchase? Does your lender have an established specialty in aircraft financing or only do an aircraft loan every once in a while at the request of a marquee customer? Is the lender credentialed with key trade associations like the National Business Aviation Association (NBAA), National Aircraft Resale Association (NARA), or and National Aircraft Finance Association (NAFA)? If you don’t know, aircraft brokers and dealers, aviation attorneys and aircraft managers are a good source for referrals and recommendations.

    This article was published by PNC Aviation Finance.