3 Aircraft Finance Application Mistakes to Avoid

Applying for aircraft finance can feel like an onerous process, but it’s important to take the time to ensure it’s done correctly. Gerrard Cowan speaks to industry experts about some of the common applicant errors to avoid.

Gerrard Cowan  |  07th September 2023
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    Gerrard Cowan
    Gerrard Cowan

    Gerrard Cowan is a freelance journalist who focuses on aerospace and finance. In addition to his regular...

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    What to avoid when applying for aircraft finance

    Business jet owners can access a range of financing options when acquiring or upgrading aircraft. However, errors and oversights could undermine their efforts to secure funding, as shared by some of the aircraft finance industry’s leading experts.

    While aircraft obviously have their own specific needs and challenges, applying for an aircraft loan isn’t so different from other types of loans, says aviation analyst Brian Foley.

    “Inaccurate financial information, asking for too much or too little money, lacking collateral, an inadequate credit rating, not revealing past red flags, and not securing expert assistance could all result in an undesirable outcome,” he warns.

    1) Aircraft Finance Mistakes: Failing to Provide Information

    Aircraft-related information is usually not a major stumbling block for a transaction, but providing a certain amount of information up front can result in a faster process, according to Robert Gates, head of international sales at Global Jet Capital.

    “With a Manufacturer Serial Number (MSN), Global Jet Capital can quickly learn a lot about the aircraft during initial review,” he illustrates. “However, a detailed aircraft spec sheet is good practice at the time of a financing inquiry.”

    Providing information up front will expedite an aircraft review, says Gates. It’s important in a range of areas, including configuration, maintenance status and damage history.

    “Applicants should also provide information relating to the desired use patterns for the aircraft post-acquisition,” he adds. “What are the typical missions? How many hours per year do you expect to fly? Who will manage the aircraft? Where will it be based, and will it be hangered? This supplementary information is useful to the financier and will help fill out the application file.”

    It is also critical to provide Ultimate Beneficial Owner (UBO) and credit information, so that the finance provider can conduct a preliminary ‘Know Your Customer’ (KYC) and credit review, Gates notes. Common names could trigger KYC search ‘hits’ that are totally unrelated to the applicant, so it’s important to supply relevant information as quickly as possible.

    “Supporting information to help us understand the nature of the UBO’s primary business activities can accelerate the preliminary credit review process,” Gates says. “For example, a recent bank or investor presentation that provides information about key business segments, profitability drivers, customers and industry dynamics will assist with the initial credit review.”

    While errors can delay they process, they are not typically grounds for rejection, Gates assures. “We work closely with clients to help avoid such issues.”

    Isabelle Lafond, Assistant Vice President, Aviation Finance at LBC Capital, a member of the National Aircraft Finance Association (NAFA) says a lender ought to be seen as a business partner. Therefore, it is best to be upfront with your goals and expectations. “Any attempt to hide information can cause problems or delay the closing.”

    It is also important to provide full details on ownership structure, intended utilization (Part 91 vs Part 135), who will be the operator, information related to the aircraft’s purchase price (including any last-minute changes), aircraft specifications (including any damage history), and so on, she says.

    According to Lafond, failing to pay attention to the lender’s insurance requirements until the last minute can also create delays in closing, as will “cheapening out on certain expenses – for example, not using an aviation counsel”.

    2) Aircraft Finance Mistakes: Getting the Details Wrong

    Luci Johnson, Senior Vice President and Operations Group Manager at PNC Aviation Finance, says it is critical to provide accurate ownership and aircraft information.

    “While some inaccuracies in the process can be addressed with a quick fix, others can put up to a week or so delay in the overall process. Occasionally, extensive delays can lead to an application decline,” she warns.

    Therefore, when providing aircraft information, it is important to be accurate on details that could impact valuation, such as airframe hours and engine maintenance program enrolment. “Additionally, it’s recommended that a second pair of eyes reviews the application to check it for inaccuracies before submitting,” she suggests.

    Errors can have a serious impact on the application, and Johnson illustrates by highlighting how incorrect ownership information can lead to errors for the bank and/or invalid registration of the aircraft. “Incorrect aircraft information can lead to an incorrect valuation, which could result in a lesser loan advance,” she adds.

    There can also be difficulties if the applicant changes information in the middle of the process, according to Adam Meredith, President of AOPA Aviation Finance. This could include switching aircraft ownership from an individual to a business or company, for example. “That totally changes the underwriting process; sometimes it will no longer be a loan the lender can do because of business debt loads.”

    Similarly, there can be problems if an applicant changes the year or make/model of an aircraft. “Certain aircraft are not acceptable collateral to lenders,” Meredith warns. “You cannot also just assume a slightly older version will be OK. Often it isn’t as lenders typically have age requirements on turbine aircraft.”

    Finally, Meredith says there can be problems if partners are not included as part of the application, whether they need the financing or not. “Lenders need to know who all the parties to the transaction will be.”

    3) Aircraft Finance Mistakes: Leaving Things too Late

    In general, entities considering aircraft financing “may wish to pull the engagement with a finance party forward in the acquisition process”, says Gates.

    It is common to be approached as a financier later in the process, such as after a Letter of Intent (LOI) has been signed and the borrower or lessees are seeking to close in a matter of weeks. “While Global Jet Capital has successfully closed in such a timeframe, prospective buyers and lessees would be better served engaging with a finance partner sooner, rather than later,” Gates stresses.

    Timing and jurisdiction for closing should be mapped out with your financier and tax advisors before certain other decisions are taken, Gates says. Global Jet Capital frequently works with clients to “preapprove” financing or leases so they have the confidence to cut a deal in the fast-moving marketplace.

    “Nobody likes a surprise when it comes to acquiring a business jet,” Gates adds. “Our primary objective is to get involved early, work with the customer and their advisors and help make a complex process as easy as possible.”

    What if You Don’t Meet the Investment Profile of a Lender?

    Applicants who do not meet the investment profile of traditional lending have other options to the credit-based underwriting process, according to Chris Miller, Managing Partner at JSSI Aviation Capital.

    He illustrates by highlighting how asset-based financing means some lenders can underwrite an aircraft at the component level, with borrowers benefiting from flexible financing structures.

    “This is especially helpful for transactions that need to move at speed as the asset-based loan process is simpler and does not involve credit checks or audited financials,” he concludes.

    More information from:
    AOPA Finance: https://finance.aopa.org/
    Brian Foley Associates: www.brifo.com
    Global Jet Capital: www.globaljetcapital.com/
    JSSI: www.jetsupport.com
    LBC Capital: www.lbccapital.ca
    PNC Aviation Finance: www.pnc.com

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