The Aircraft Financing Market in 2010

January 19, 2010 — AirFleet

Considering buying an airplane this year? Given the meltdown in the banking sector, you may be wondering if it’s possible to get financing, and if so, what may have changed in the past 18 months.

First and foremost, financing is readily available for most buyers in today’s general and business aviation markets. Some exceptions may be found with older aircraft (1960 and older), commercial-use aircraft (i.e. charter or flight schools), or other “niche” aircraft (aircraft not easily appraised through Bluebook or Vref).

However, you may also find that it’s a little more difficult to find an aircraft financing partner, as to-date more than 15 aircraft-specific finance firms or banks have either cut-back from financing aircraft or have closed their aircraft financing divisions (often to focus on core competencies).

Other changes you may find in the aircraft lending community compared to the last time you purchased an airplane.

• Down-payment. Generally, banks now want to see 15% to 20% down for private-use aircraft loans, or more for commercial-use or special-use aircraft or helicopters.
• Credit criteria – credit scores. Many banks have raised their “minimum” credit score to 700 (previously it had been at around 650 to 660 for the past few years).
• Credit criteria – cash flows. Gone are the “no income verification” loans, which were not common-place in aviation anyway. You are likely to have to substantiate the excess income to support a loan using your most recent 2-3 years’ tax returns and other income information.
• Escrow Closings. If your transaction involves two private parties (not a professional sales organization), you will likely find that escrow is now required for the close. The downturn in the economy found an increase in fraud-related activity, so escrow is now generally required for closings.
• Collateral verification. Much the same as the reasons for the escrow closings above, there is more information required by banks today to verify the condition of the aircraft. Banks have seen an unprecedented string of repossessions in the past two years, and coupled with the significant deterioration in collateral values the banks really need to know what they’re financing. Often you will be expected to have the seller provide a copy of the recent annual (and possibly other logbook entries), photos of the aircraft, damage history, and a copy of the pre-buy inspection. For larger transactions or more unique aircraft, a physical appraisal may be required.