Transactional Aviation: Will 2017 Mark a Turnaround?

The National Business Aviation Association held its annual two-day Business Aviation Finance, Registration, and Legal conference last month in Bonita Springs, Florida, and the event concluded on an upbeat note.

“Things appear to be getting better,” conference cohost and Citi Private Bank Global Aircraft Finance head Ford von Weise told BJT sister publication Aviation International News. “I think we are at an inflection point where aircraft have become such great values that people who are traditional value opportunists can no longer sit on the sideline because we’ve never seen [prices] this low. If you combine that with the macro-economic trends, it bodes well at least for the short term, and hopefully for the long term.”

His sentiments matched well with the guardedly optimistic sentiments of conference opener Rolland Vincent, director of JetNet iQ. Vincent's predictions were the lead-off to a series of seminars and panel discussions on topics that ranged from aircraft financing trends to federal taxes (and how to avoid them), complicated structures for purchasing and owning corporate aircraft to digital signatures, and the federal registry, business jets, and emissions requirements, changes in the international registrar for aircraft, import/export aircraft procedures, aviation insurance coverage and claims, and even UAVs.

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Turbulent Times in Business Jet Finance

A changing marketplace has variously caused lenders to reevaluate assumptions, change rules or products, close up shop, or expand.

The conference’s business aircraft finance panel presented a mix of bankers and financiers from companies backed by private-equity firms. According to von Weise, “Basel III international banking reform has focused the banks to lend money to the clients with the best credit, who happen to be clients who really don’t need the money but use the bank’s products as a way to optimize their balance sheets. You have to be a $50 million net-worth person and open accounts with Citi Private Bank and have $100 million if you want to [finance aircraft] with us,” he explained. “We offer these aircraft loans as part of the relationship package we have with a customer.” 

Sam Harris of JetLease Capital said, “Before the financial crisis 60 to 70 percent of aircraft were financed, but that’s flipped.” He continued, “Now more borrowing is beginning to happen again, I believe, and there is plenty of capital available.”

Representing one of the busiest lenders in the business, Wayne Starling of PNC Aviation Finance countered von Weise’s description of bank lending. “Fifty percent of our 150 transactions a year still come from nonbank customers,” Starling said. “We may do a loss-leader loan for the right bank customer, and that is where Basel III comes in. But we are an aggressive transactional lender. We ask, ‘Should we do the loan, can we do the loan, and is this a client we want to have a relationship with?’”

Don Walsh, vice president of Stonebriar Commercial Finance, explained private-equity financing. “We are not unregulated—just regulated differently from a bank. Our biggest opportunity at present is the international market, where the buyers might not have a lot of bank options,” he continued.

Regulations Explained

The conference focus then shifted to FAA regulatory procedures dealing with aircraft transactions, including how to set up non-citizen trusts and changes in the FAA Registry procedures, zeroing in on acceptable documents and the intricacies of digitally signed documents.

“U.S. law is clear: a digital signature is acceptable, but you’ve got to make sure that the document is legal under the laws of the land where you are executing the deal if it is outside the U.S.,” cautioned Frank Polk, attorney for McAfee & Taft in Oklahoma City, Oklahoma.

Rounding out the conference was a panel on regulations designed to discourage and prosecute the application of non-consensual liens on aircraft. The panel was led by Rob Cowan, managing director of Aviareto, which operates the International Registry of Mobile Assets under the Cape Town Convention. Cowan indicated that changes in the procedures for registering non-consensual liens have led to a significant drop in nuisance liens that can cloud aircraft titles and complicate transactions.

Mary Ann Townsend, an associate with A&L Goodbody of Dublin, Ireland, detailed the new features of the Registrar, among them an online Closing Room where digital documents can be signed securely and a sophisticated search function to help lawyers research liens.

“The first phase of Generation III of the Registrar is expected to roll out this July,” said Townsend.

Next up was a review of best practices for importing or exporting an aircraft in the U.S. This session was well attended because of a marked uptick in aircraft that were sold and exported during the recession, which are now being re-sold and re-imported to the U.S.

Key to the discussion was the importance of sending your own Designated Airworthiness Representative (DAR) to inspect the aircraft, no matter its location, to ensure it will qualify for an FAA certificate of airworthiness. “Consider it a pre-buy inspection,” said James Meyer, of Harper Meyer in Miami, Florida.

The core of the conference revolved around trusts and the complicated corporate structures lawyers concoct for aircraft owners designed to mitigate liability risks and tax impacts for them. Discussion focused on how a perfectly good structure, be it LLC or S-Corporation, needs to change when the aircraft owner’s situations change. For example, an aircraft purchased solely for Part 91 use incidental to business might, in the owner’s later years, be used more for family travel or even leased out to a Part 135 charter broker. 

The conference wrapped up with an informative “Are you covered?” session by insurance experts Melissa Harder of Willis, Towers, Watson; Sharon Holahan, vice president of claims at Global Aerospace; and Ellyn Snow, of Ellyn Snow Consulting. Attendees learned about the Part 135 operator sued for liability in a kidnapping; uninsured art that was damaged in transport (again on a charter flight); and the horror of learning that the loaner engine destroyed with your aircraft in a hangar fire wasn’t covered under your typical policy. The takeaway from that: insurance riders are good to have in your defense arsenal.