I was looking at a list of common consumer products and how long they typically last. What struck me is that my wife and I have a retirement home for appliances. Our microwave dates to the mid 1990s, as does our stove. We did replace the fridge a few years back, along with the dish washer. Those are now ‘middle-aged’. What got me thinking is that we have a line of credit with our bank.Back to Articles
Right now we don't use it - but those monthly zero statements that get emailed state that we can write out a decent-sized check that can make these appliances all brand new! While my line of credit can more-than-cover new appliances, it falls short (significantly short) of that needed for an aircraft.
One thing I do hear from aircraft buyers is that there is no money for aircraft deals. That statement is only partially true. There is money out there, but certainly not for crazy aircraft deals. Crazy aircraft deals can be classified as follows:
â¢ 100% financing: Aircraft values took a beating these past two years. Don't ask the bank for 100% non-recourse financing. Donât ask them for âinterest only, with a big balloon paymentâ loans either.
â¢ "Trust me, I'm good for it" loans: You may very well know someone famous or rich (or both). It will take more than your word for the bank to lend money though.
â¢ No old airplanes: There is still a glut of used aircraft on the market. The last ones to move are generally the oldest aircraft.
As a rule of thumb: the aircraft age at the end of the deal must not exceed 20 years. So if you want a five-year loan, the aircraft must be no older than age 15 at the start.
When I use the term "bank", I include all financial institutions that are still writing leases and loaning money for business aircraft. Regardless of the size of the institution, they are saying the same things: What you need for a loan or a lease of an aircraft are the good old fashioned banking requirements of Credit, Character, and Collateral.
You need to demonstrate that you have the finances to acquire and operate the aircraft. Complete fiscal disclosure is needed. Assets are not enough. You need to show liabilities and income sufficient to cover the deal.
Who are you/your business/your shareholders? Reliable, dependable, salt-of-the-earth- type character counts. A stable, well-run company with consistent financial performance is a big plus. The same applies to the individual. If your track record matches that of Charlie Sheen, then you'd better pay cash.
Relationships matter. If you have a long-term, and significant history with a financial institution, they should be your first stop when looking to finance an aircraft. They know you, your assets, and credit history - and will be more likely to make the best deal in order to secure your business.
No 100% financing means both a down payment and sufficient cash (or cash-equivalents) to secure the aircraft are needed. Today, as a rule-of-thumb, you will need 20% down payment on a new business jet. As the aircraft gets older, you will be asked to come up with a larger down payment. For a 10-15 year old business jet, 50% down is not unusual.
LEASING FOLLOWS SIMILAR REQUIREMENTS
One plus in today's market is that short-term leases (two to three years) may have more attractive rates as the banks are still looking to unload a lot of aircraft. Three to ten years is a typical lease duration.
Remember, plan carefully with a lease. Trying to exit a lease early is easy, just pay off the remaining lease payments! You may wish to negotiate for an early buy-out option if you think you may not make the full lease term.
So we can conclude that the money is there - you just have to qualify. In 2008, aircraft lending was like a community college: almost everybody got in! Today, they are more like an Ivy League School. When looking for a loan or lease, be ready to discuss your finances, and remember that the banker you know may be your new best friend!
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