On The Fly

On the fly

Financing an aircraft: what to do before you ask for the money

The crystal ball gazers are mostly in agreement – things have improved, the bottom is moving out of sight and the “good times” are coming faster each month. While things are better in the business aviation world and activity is now being quoted as “close to pre-recession” bustle, there are still some caution points to deal with. Obtaining lending for an aircraft acquisition is one of them. Rob Seaman explains.


To say the least, Group Head and Managing Director of CIT Business Aircraft Mike Kahmann knows aircraft financing. After all, his group provides financing and leasing programs for owners of business jet aircraft and turbine helicopters in both the US and abroad. According to him, this is the first year that most brokers would say the trends are very positive and inventory is going down in respect to used aircraft. 

“That said, the inventories are still elevated somewhat and, as a result, prices as still somewhat soft,” he adds. “Hopefully, the velocity of transactions will lead to further reductions in inventories and firmer pricing in the months and years ahead.”

As for the lending side, he says financing is following a general trend in the US banking community whereby credit terms are getting more lenient with respect to advance levels as well as rates. “There are more players financing both new and used aircraft and most financial institutions are looking to business aircraft as way to profitably deploy capital,” he says. “Thus, older aircraft, or aircraft between 15 and 20 years or older, do tend to be more difficult to finance.”

In other words, while terms are perhaps more aggressive, lenders are being selective about the types of aircraft they are willing to finance.

Michael Payne, a Toronto, Canada based broker with many years of jet, turboprop and general aviation sales experience, notes that this was not the first recession he has weathered. He learned many years ago to develop ways and means to help clients be prepared to qualify for financing, even in the toughest of markets. “It is all about the preparation you put into the documents you submit to a lender for review and consideration,” he says. “The better and more thorough the presentation, the more likely you will be successful.”

To help, he has bundled this down to a few simple guideline questions and parameters for a prospective lender to understand how you plan to put their money to use:

Start by outlining your mission

To start, you need to define the kind of equipment – piston, piston twin, turbo-prop or jet – and state who will be using the aircraft - Senior Management, Chairman, CEO, CFO, Sales or Tech Support or a combination thereof.

Next - will you operate from a long runway, short runway, gravel, or water? This is followed by stating where you are going - less than 200 nm, 500, 1,000, continental, intercontinental?

Although the lender may not need all this information, Payne indicates it is an important part of your planning. “Once you have chosen the aircraft type, choose the make and model that will fill the mission,” he says. “Consider the range you need and time considerations, and select a manufacturer that can provide support not just right now, but one that will be there next year or in ten years.”

He also says you should always look at the parts and technical provisions the manufacturer offers. “Good tech support and AOG parts service almost anywhere in the world is a must,” he says.

What a lender wants

Payne notes that most lenders start by evaluating the aircraft via Vref or Bluebook, looking at comparable prices for aircraft on the market. The purchase agreement submitted to a lender should obviously include the price, but also what is included in the price (equipment and spares). Be sure to state serial numbers for the aircraft and important components, such as engines, props and so forth. Plus, always show total time and time since overhaul of all the principal components.

Your lender will want to see all of this. Having it in a single submission minimizes paper and communication time upon application, not to mention creating a more inclusive sales agreement for both buyer and seller.

More so, the finance company may or may not want to know the maintenance status of the aircraft, ADs, SBs, major maintenance checks due or coming due, the calendar limits and life limits on major components. But as a buyer you should educate yourself and be aware of these items – and cover it in your purchase agreement. Also be sure to include the amount of the deposit, who will it be with and the place and conditions for closing.

“If the aircraft is to be financed by a corporation or LLC, the finance company will want to know how long the company has been in operation, and the assets of the corporation, including whether the aircraft is the only asset,” says Payne. “They will want corporate financial statements and, most often, personal financial statements.”

“Their main interest is to understand how the asset will be secured, the value, your ability to pay (cash flow) and your ability to provide security for the asset (credit worthiness),” he concludes. “Unless you’re a large corporation or have a large down payment, be prepared to provide a personal guarantee.” 

As with any good business transaction, a little preparation and the correct, useful information will help to make your application look solid, well considered and worth the attention of the lender.

Remember, getting attention in a positive way from the start will help move you quickly towards a mutually agreeable and completed agreement.

By Rob Seaman

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