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All It Takes Is Money
Five questions before you get your first aircraft.

I get a weekly newsletter that updates me on the overall economy and state of the US stock markets. In it are always tidbits of financial advice. In a recent update- it discussed how to advise your children or grandchildren when they ask about getting a loan to buy their first home. After I read it- I thought that it applied very nicely to the acquisition of a first aircraft: In both cases the buyer is likely unfamiliar with the process- and whether or not they can even get funding.

We are working with several clients who all say the same thing; they feel that now is the time to buy- but don't know what- and how. In a few cases- we get the call via a pilot-friend of the buyer. The pilot knows the aircraft- but is unfamiliar with the ins/outs of the acquisition process.

Following are some helpful questions that you can answer as you assemble your aircraft acquisition team.

Owning an aircraft extends well beyond the initial acquisition price:

• Do you know what it costs to operate the aircraft?
• Do you have a first year's budget?
• If you are buying a used aircraft- where in its maintenance cycle is it?
• Is there a major inspection or overhaul looming on the horizon?
• Have you analyzed the impact of these costs- and do you have the cash available to pay for these?

Bottom line: Just because you can afford to buy the 28-year-old Challenger 600- doesn't mean you can afford to operate it.

Let’s imagine the aircraft you just bought has no major scheduled inspection due for over a year. That’s great… but what about that unscheduled repair- which could cost a few thousand- or a few hundred thousand.

A broker friend of mine tells his customers who are buying business jets to budget for the first year's maintenance and upgrades. They often don't need it- but it is better to have money available. I can't stress enough that aircraft are expensive. Whether a light piston twin or a global business jet- it does take a lot of money to own and operate them.

In order to save money up-front- you may wish to look at financing. Financing is available - although not as available as you may like.

If you are a company like Apple (with $40 billion in cash reserves) then asking to finance a global jet should get you several offers. If you can afford to pay cash- and you have an outstanding credit rating- then financing is available - and at good rates.

As you depart from that optimum- the financial risk increases- and so will the rates and pre-conditions. Financial institutions will look at stable income. Winning the lottery will not get you financing for an aircraft. If you or your company have weathered the recent economic storm in good order- that will mean a lot to the financial institution.

We often get asked; “Who do I talk to about financing an aircraft?” While NAFA is one place to research- a better first place is a financial institution with which you have a relationship.

Have you done business with an institution for many years- and do you have an excellent track-record with them? Financial records and debt ratios are important- but even more so is a record of trust and reliability that only comes from having done business with the financial institution.

As a general rule of thumb- the aircraft age at the end of the finance/lease term should be no greater than 20 years. Newer aircraft are easier to sell. No financial institutions want to have the risk associated with taking back an aging aircraft that will have low residual value and be difficult to sell. They will adjust for the residual value- but if it takes 15 months to sell- the bank wants nothing to do with a parked aircraft! In general- the older the aircraft- the bigger the down-payment or the tougher the terms will be.

There are some great aircraft out there and some great bargains. Now is the time to buy. But- if this is your first foray into the acquisition of an aircraft- make sure that you understand as much as possible before beginning the search. And as stated above: Get your acquisition team together early!

David Wyndham is an owner of Conklin & de Decker. The mission of Conklin & de Decker is to furnish the general aviation industry with objective and impartial information in the form of professionally developed and supported products and services- enabling its clients to make more informed decisions when dealing with the purchase and operation of aircraft. With over 1-800 clients in 90 countries around the world- Conklin & de Decker combines aviation experience with proven business practices.

More information from www.conklindd.com; Tel: +1 508 255 5975

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