Financing Your Upgrade

You’ve reviewed the equipment- you know what you need- but how do you proceed? During these times of slower-than-normal aircraft utilization- many operators are electing to upgrade and update their aircraft. This can be as simple as a general re-painting to a moderate updating of the avionics- or a full upgrade including avionics- interior and engines (such as the DASH 10 program offered for Falcon 50 owners).

AvBuyer  |  01st August 2009
Back to Articles

The AvBuyer editorial team includes Matt Harris and Rebecca Applegarth who contribute to a number of...

Read More

You’ve reviewed the equipment, you know what you need, but how do you proceed?

By John Brodeur

During these times of slower-than-normal aircraft utilization, many operators are electing to upgrade and update their aircraft. This can be as simple as a general re-painting to a moderate updating of the avionics, or a full upgrade including avionics, interior and engines (such as the DASH 10 program offered for Falcon 50 owners).

Whether your upgrade will cost $50k or $1 million+, there are options available to have your program financed. The common element that the lenders look for when you apply for financing is whether the upgrade/update increases the value of the aircraft.

For the majority of cases the answer to that initial question will tend to be ‘Yes’; but there are some danger-areas where an upgrade or update will cost more than what the aircraft is actually worth. For that exact reason, we don’t see many Jetstars (for example) having avionics, interior and engine upgrades; the cost of this work combined will not actually increase the value of the aircraft to make it a worthwhile project.

The same scenario will apply to many other older aircraft models still currently flying. Ultimately, these upgrades and updates add up, so they must be evaluated by the lender to ensure it makes economic sense before financing is granted. Within the scope of this article, we’ll look at three general areas of aircraft finance available as options for the operator/owner.


Wholly-Owned Aircraft

In the scenario of a wholly owned aircraft, it hardly needs to be said that has the best opportunity to obtain favourable financing for an upgrade. Since the aircraft is paid for, most lenders will be willing to finance a project.

In speaking to some of the major aviation lenders (none of whom wanted to be named or quoted directly here - financing any aircraft upgrade is generally based on a case-by-case review with many variable outcomes), the wholly-owned aircraft upgrade will meet the general requirements for financing as long as the company or individual meets the financial requirements of the lender.

Generally speaking, the only limitation is if the aircraft is used as collateral, in which case the cost of the upgrade would have to be in line with the net value of the aircraft. Recalling our Jetstar scenario (above), it can very difficult to obtain financing for a dollar-amount once the price (value) of the aircraft is lower than the amount you want to invest in the upgrade.

Of course if you do not use the aircraft as collateral, and pay for the upgrade yourself you are free to do upgrade in any way you desire. This is why we see aircraft such as Boeing 727 in executive configuration, or older aircraft such as Sabres, Lear 20s, and (yes), even Jetstars with recent upgrades including RVSM and flat panels, all paid for, and utilized by their owners.


Leased Aircraft

If the aircraft you plan to upgrade is a leased aircraft, then due diligence will have to be kept. Borrowing for an upgrade gets a little tricky, because the lender (lessor) will look at various issues such as collateral coverage, depreciated value and tax implications.

Your lender’s policy will generally outline these requirements and limitations, but in most cases you will have to discuss with your lender the upgrade program you wish to implement. The lender will then look at items such as depreciated value over a certain time-period. This will include examining the cost of the upgrade over a set time. Generally speaking, most lenders limit this to 30% of the value of the aircraft.

So if you were in a position of having a $10 million dollar aircraft, the most you could spend for an upgrade would be in the region of $3 million. This is because the lender takes the depreciated tax from the asset value. As such they are limited by how much the lessee can have as an equitable investment in the aircraft. Further, the lessee is limited by the lender’s policy by how much material interest the lessee may have in the aircraft in question.

In a nutshell a leased aircraft may be upgraded but there will be limits to the amount in funds that can be invested. Begin by talking to your lender and provide as much detail as possible, especially on pricing. The real limit on upgrading a leased aircraft will be the amount to be invested, plus by how much the aircraft will actually increase in value as a result of this upgrade. Going above the lender’s limit will restrict your lender’s tax depreciation benefits.


Financed Aircraft

If your aircraft is already being financed then the determining factor will be how much of the outstanding amount is due, versus the cost of the upgrade, followed by how much in value the aircraft would raise as a result of the upgrade.

In a financed aircraft scenario the beginning phase will be what amount is still owed on the aircraft versus its current value. Today this will be a hard fought discussion, since aircraft have taken such a bad hit in asset value lately. It is very common today that aircraft owners are in a similar situation to home owners.

Aircraft that were purchased in the last two years at premium prices today cannot command those same prices when the aircraft is re-sold. Granted, many of the nearly-new aircraft owners will not be considering upgrades at this time, anyway, but this effect has trickled down to older aircraft as well. For example many pre-owned Gulfstream GIVs and Challengers were purchased in around 2006/2007 at a price level that is nowhere near what they sell for today. But these aircraft could be prime candidates for upgrades.

The problem becomes clear when an aircraft, with an outstanding loan of $20 million, requires a $2 million dollar panel upgrade, but the Bluebook or Vref values the aircraft at $16 million in today’s market. If, on the other hand, you have $10 million in an outstanding loan on a $16 million valued aircraft, then getting funds for a $2 million upgrade will make far more economic sense to the lender in question.



The first thing to do is to have a complete understanding of the upgrade you wish to install. Talk to your shop and get a full proposal with all the necessary information. Then weigh-up whether the upgrade will increase the value of your aircraft to where you can expect to recoup the investment within a certain timeframe, or when it comes time to sell the aircraft.

With all the necessary information to hand, talk to your lender: They will discuss with you what their policy allows and what can and cannot be done if applicable. If you do indeed own your aircraft then talk to any of the major aircraft lenders still doing transactions today. Among the major players are GE Capital at; PNC National City at; Bank of America at; and Wells Fargo at There are, of course, many other lenders doing aviation deals, though.

We conclude with one other common issue that is shared by the lenders: maximum aircraft age that most lenders will finance is about 10-years. Some will go to as high as 20-years, but that is considered the cap by the majority. There are still some options available for operators of older aircraft, but that will need to be a discussion for another article.


Canadair CL-605 1
Canadair CL-605
Please call
United Kingdom
Bell 430 1
Bell 430
Please call
United States - TX
Airbus/Eurocopter AS 355N 1
Airbus/Eurocopter AS 355N
Please call
Piper Cheyenne IIIA 1
Piper Cheyenne IIIA
Please call
loder image