10 steps to a successful aircraft financing

Buyers' Guide » 2012
10 steps to a successful aircraft financing
The business jet finance market is changing, just like the rest of the world economy.
Wednesday, July 25, 2012 - 11:30am

The business jet finance market is changing, just like the rest of the world economy. It’s becoming more highly regulated, more conservative and more international. Its biggest challenge is the surfeit of cash that many aircraft buyers have on hand with no compelling place to invest. The banks, which find themselves in a similar situation, famously prefer to lend money to people who don’t need it, and in today’s business jet market, there are more of those people than ever before. However, if you’re looking for financing, here’s a strategy for locating the best deal.

1. Find the right aircraft at the right price. Most aircraft finance institutions–even the ones that say they are “asset-based”–are “credit shops.” Their overwhelming focus is on the ability of their customers to pay back the financed amount. But that doesn’t mean they ignore the aircraft altogether; banks still want to be confident that you aren’t paying too much for it and that the value of their collateral won’t sink like the Titanic. Make sure to get expert advice about the value of the aircraft you choose, and be mindful that the older it is, the harder it will be to finance. Moreover, make sure it’s right for your needs, so you won’t be charged penalties to pay off a loan early or get out of a lease because you purchased too much or too little aircraft for your travel or budgetary requirements.

2. Pay attention to timing. Aircraft financings sometimes used to be arranged virtually overnight. No more. If you want financing, start the process as soon as possible. You can get a good idea about financing costs and terms simply by talking to a lender generally about the airplane model, model year and estimated acquisition cost before ever signing a letter of intent to purchase an aircraft.

3. Determine who will buy the airplane. That sounds easy, but it can be a complex subject. If you’re a first-time buyer, I recommend retaining aviation counsel to help with this at the start of the process. Factors that influence who buys the aircraft include liability concerns, FAA ownership and operating rules, often-obscure tax considerations like the “at-risk rules,” public company reporting requirements and the ability of business partners or others to use or help pay for the aircraft. The identity of the buyer will also directly influence the choice of financial institution. A commercial enterprise won’t get an aircraft loan from a private bank, but the CEO might.

4. Decide on a loan or a lease. For most airplane buyers, the availability of tax benefits will determine this choice. If you can use the tax depreciation, a loan may be the best option; if not, consider leasing, where you can still get the benefit of tax depreciation through lower financing costs. If you’re uncertain, request proposals for both. Note, however, that while all aircraft financial institutions provide loans, many don’t offer leases.

5. Choose credit-based or asset-based financing. If you want your lender to put greater weight on the aircraft’s value as opposed to your creditworthiness, you’ll have limited options, and if you want non-recourse financing, you’ll have even fewer choices. A related issue is whether you’ll need maximum flexibility in structuring the financing, in which case you may be better off with a non-bank institution that is less bound by federal and state banking rules and regulations.

6. Consider relationship-based financing. Aircraft financiers differ in their appetite for making so-called transaction-based loans–one-off financings with someone the bank may not otherwise do business with. In other words, if a bank focuses chiefly or exclusively on aircraft financings for existing clients, you should probably look elsewhere unless you’re one of those clients. Your private bank, for example, may offer extremely attractive financing terms for an aircraft purchase, allowing you to leverage off an existing relationship. Keep in mind, though, that an aircraft loan through your private bank will be cross-collateralized to other assets pledged to the institution. Further, a “relationship” may actually hurt you if the bank feels it already has too much credit exposure to you or your company.

7. Solicit proposals. Once you do your homework, you’re ready to ask several financial institutions for proposals. Your acquisition consultant should be able to suggest likely aircraft financiers for you to consider. In addition to the amount of the financing, loan or lease, fixed- or floating-rate and recourse or non-recourse, you’ll need to request a term, proposed down payment and maybe even a proposed amortization. A 100 percent 12-year loan on an 18-year-old aircraft with 25-year amortization will likely find few takers, but an 80 percent five-year loan on a five-year-old aircraft with 10-year amortization may prove quite popular. You won’t know until you ask.

8. Negotiate your deal. This is the key moment. It’s when a little creativity goes a long way–for example, by negotiating for the addition of an option to switch to fixed rates in the future as part of a low-cost floating-rate deal. Remember that proposals are typically confidential, so don’t send one lender’s proposal to another lender to try to get a better offer. But you can certainly let a lender know if its terms aren’t competitive with other proposals you’ve received.

9. Make your selection. Don’t assume you should just choose the lender offering the best overall financial deal. That’s an important consideration, of course, but not the only one. Does the lender have a track record in aircraft finance, or is this one of its initial or infrequent forays into the field? Can the lender deliver what it promises, especially in time for closing?

10. Wrap up the deal. Your lender will have to do its due diligence–on you and/or your company, the aircraft and the underlying purchase deal. It will want to see tax returns, financial statements, the purchase agreement, the prebuy report–all kinds of things. It may also require a written appraisal. Make sure your aviation attorney reviews the financing documents. Aviation transaction lawyers do this all the time, and often more efficiently than high-priced finance counsel. They know where the aviation skeletons are buried–prohibitions on Part 135 flights, limitations on flight hours, unreasonable lease return conditions. It’s worth hiring an expert.
 

Aircraft Financial Institutions
Private and Commercial Banks and Affiliates

Banc of America Leasing
Global Corporate Aircraft Finance
Addison, Texas
Michael T. Amalfitano
(972) 455-5855

CBI Leasing, Inc.
Aircraft Finance & Leasing
Commerce Bank, N.A.
Lake Forest, Ill.
Sean K. Patrick
(847) 295-4601

Chase Equipment Finance, Inc.
Tampa, Fla.
Chad E. Colby
(813) 483-8246

CIT Bank
CIT Aerospace Business Aircraft
Plantation, Fla.
Mike Kahmann
(954) 359-4646

City National Bank
Aircraft Finance Group
Irvine, Calif.
David W. Maurer
(213) 673-8929

The Citigroup Private Bank
Global Aircraft Finance
New York
Mary T. Schwartz
(212) 559-0561

Deutsche Bank Private
Wealth Management
Private Aviation Finance
Chicago
David W. Rodin
(312) 537-1510

Fifth Third Bank Leasing
Boston
Matt McNamara
(617) 573-5191

First Republic Bank
Aviation/Marine Finance
San Francisco
James F. Simpson
(415) 296-5783

First Source Bank
Laird Professional Building
Downingtown, Pa.
Jeffrey Lindstadt
(610) 269-1683

Key Equipment Finance
Corporate Aviation Finance
Boston
Patti Ann Sullivan
(978) 261-5201

PNC Aviation Finance
Boise, Idaho
Wayne Starling
(888) 339-2834

RBS Aviation Finance
Manchester, N.H.
Donald A. Synborski
(603) 634-7522

SunTrust Equipment Finance & Leasing Corp.
Corporate Aircraft Finance
Towson, Md.
B.J. Honeycutt
(410) 307-6732

U.S. Bank Equipment Finance
Capital Equipment Group–Corporate Aircraft
Denver
Pete J. Georgelas
(303) 585-4036

Wells Fargo Equipment Finance, Inc.
Corporate Aircraft Division
Los Angeles
Robert C. Lebano
(310) 789-5036

Other Financial Institutions
Cessna Finance Corp.
Wichita, Kan.
Perry Bridges
(316) 660-1392

Export-Import Bank of the United States
Transportation Division
Washington, D.C.
Robert F. X. Roy, Jr.
(202) 565-3557

GE Capital Corp.
Corporate Aircraft Finance
Danbury, Conn.
Brent P. Godfred
(203) 749-6657

Guggenheim Partners, LLC
Business Aviation Investments
Woodbridge, Conn.
James A. Crowley
(203) 393-7247

Prudential Capital Group
Atlanta
Robert Penfold
(770) 701-2410

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