All posts tagged 'Aircraft Sales' - Page 4

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Aircraft Financing: A Return to Sanity

Two years ago, if you were interested in purchasing an aircraft and wanted to finance a portion of the acquisition cost, the world was your oyster. Low down payments, extended loan terms of 20 years or more, minimal credit verification all added up to a great deal for buyers in a marketplace full of competition. Much like the home mortgage market or commercial finance world, capital was available and, seemingly, as long as you had a pulse, someone was willing to offer you a loan.

We all know what happened in October 2008: the financial world was turned upside down. Financial markets were faced with the imploding real estate bubble, commercial and secondary market capital providers like Bear Stearns, Merrill Lynch and many retail lenders, big and small, teetered on the brink of ruination. Many fell over the edge. In the aircraft world, lenders retracted and in some cases, exited the market place. Buyers retracted, watching the values plummet to record lows and waiting for the market to hit bottom. Some owners were forced to sell their aircraft whether they wanted to or not.

All of these and many more factors resulted in a fractured aircraft sales and finance market with a huge volume of aircraft for sale, few buyers and even fewer opportunities to finance acquisitions.

Now as we approach mid 2010, we see that the worst of the economic storm seems to have passed and the world of aircraft sales, purchases and financing seems to be returning to a calmer state. I do not mean that these markets have returned to the craziness of 2008 but the phoenix does seem to be rising from, or at least poking its head out of, the ashes.

Aircraft prices seem to have bottomed out and some sources even indicate that the single engine aircraft actually seem to be gaining value (up from the 30% or 40% loss of value that took place in 2009). Finance opportunities are rebounding as well. Although there are far fewer banks and finance companies willing to write aircraft loans, the ones that remain seem to be willing to extend credit, and here is the big difference, provided that more stringent underwriting criteria are met.

The entities that are willing to underwrite aircraft loans generally fall into two categories: 1) Small or medium sized financial institutions who, as a general rule, did not suffer from a high volume of non-performing aircraft loans or 2) Large financial institutions for whom aircraft finance is a less significant portion of their credit related business and who, thanks in no small part to the stabilizing impact of TARP funds, had the ability to absorb them more easily. Regardless of which of these two categories they fall into, the number of aircraft finance entities in the market in 2010 is dramatically smaller.

So, let’s say that you have been watching the aircraft sales market and carefully shepherding your capital for the last eighteen months waiting for the perfect price on the aircraft of your dreams. Having found your prize, you now are interested in financing a portion of the purchase price. What should you do and what should you expect?

You can use an aircraft finance broker or, in some cases, go directly to the actual lender. Some industry groups have associated finance plans and the internet can be a useful tool in determining who to talk to. You will likely find that you will need to make a down payment of at least 15% of the value of the aircraft (more if you anticipate any commercial use of the ship, that the duration of the loan will not exceed twenty years and that you will need to have a strong credit score (FICO), good liquidity and good cash flow. Lenders will look long and hard at financial statements, tax returns, credit reports and/or other documents so it is in your best interest to have all these types of documents ready and know where you stand financially before beginning the loan application process.

If you have not recently checked your credit score, do so. Most states allow you to obtain a free credit report annually. Personally, I think it is a good idea for most of us to check our credit score with all three major credit-reporting agencies at least once a year. In this day of potential identity theft, it is wise to make sure that the only person affecting your credit score is you. If, during the course of your personal credit review, you uncover something that is or appears to be incorrect, address it immediately with the credit agency. Remember, financial institutions occasionally make errors when they report to the credit agencies but it is up to you to see that they are corrected. Historical delinquency issues related to mortgage and installment debt payments are now critical issues impacting financing of luxury items. You should be prepared to expound on any delinquency circumstance that may be reflected on your credit bureau. Such items may not turn out be an automatic disqualifier but will likely impact any finance terms if offered. If you are disputing any creditors reporting, have that documentation available in advance.

Make sure that you can demonstrate to the lender that you will be able to repay the loan, even if unforeseen circumstances arise. Cooperate with them by doing what is needed to demonstrate your credit worthiness for the loan requested and ability to repay it in accordance with the agreed upon terms. After all the financial woes we have been through, lenders are not likely to offer you a loan based solely on your winning smile and steady pulse.

Whatever you do, use common sense. Ask friends and colleagues who have recently (within the past few months) financed an aircraft who they used. Call finance brokers and/or lenders and ask questions. Make sure you are comfortable that the individual and entity you are dealing with has experience in lending, can help you through the transaction efficiently and, most importantly, deal with you in an honest and helpful manner.

While Business is 'Squirrelly as hell,' America is Not Like Europe

We are currently operating under extremely strange times as I see it personally. We officially sloughed off the “recession” label last year, and the activity within the marketplace has bourne this out as being accurate; so much-so that even the heavy iron is again selling now. However any used business aircraft transaction today is for want of a better phrase: “Squirrelly as hell” with buyers willing to walk at the drop of a hat, or the nod of a chin. I believe that this is directly attributable to the uncertainty that is rife within our global lives at the present.

Let’s take for instance the situation in the Greece, Spain, Portugal, Italy and Ireland (Eire); the economies of these Euro-zone countries, and the official currency of the same, are in severe jeopardy. This in turn has the World’s stock markets on the run again, most in the wrong direction, all the while the price of oil seems to be staying in a moderate band because the U.S. Dollar is climbing in value against other currencies, and the folks at OPEC are enjoying economic gains made for them from the foreign exchanges rather than from oil demand.

The rising Dollar is causing great angst amongst the multi-nationals of this great country, because their foreign earned profits translate into fewer Dollars at home here; adding to this pressure at the top, are the alleged socializing of the nation through the new legislation that is seemingly pouring out of Capitol Hill in an un-ending river of change. We are also fighting two wars abroad, and one of the largest natural disasters ever seen on our home shores thanks to deep-well drilling gone bad.

Add all of this up, throw an Icelandic volcano, and the ever present spectre of terrorism into this big pot of woe, and pretty soon the World’s lunch menu poses a bitter and uncertain meal for consumption, hence all of the indecision, flightiness, and all-round bizarre behaviour currently being played out by the buyer of the minute.

The Annual Meeting in Geneva in early May of the European Business Aviation Council was like at surfaced submarine that had been riding out a long period of enemy surface activity, sitting in the silent depths of the ocean. Everyone there was convinced that all enemy action was long-gone and their opportunity to bath in the sun under blue skies was safe, safe, safe. Okay so it sounds like I am writing in some sort of code, but the metaphors that I am using to describe the high-riding optimism of the business aviation industry on that side of the Atlantic Ocean, just didn’t fully jive with our current economic outlook.

You may call me a naysayer, but seeing that only about 8% of the business aircraft fleet resides in Europe, including Russia and the Baltic States, the optimism shown at this convention, might be read two ways: 1.) The industry over there is either in denial or is now experiencing a renaissance whereby the traditional modus operandi of using the airlines and railways to get from city to city is the first choice, with business aircraft service coming in second, is changing to a more American way of thinking; or 2.) We Americans had better start paying attention to how the nice multi-language folks over there, structure their small slice of this industry, because our share is contracting and we shall soon be seeing more and more people choose to charter and ride fractional aircraft over the American tradition of owning your own.

We are still not out of the woods when it comes to public and governmental perception of business aircraft use here, even though geographically, companies cannot achieve successful domestic growth by relying on ground transportation, and the legacy airline system. It is still thought to be passé of corporate management, and private individuals to be visible users of business aircraft. This prevailing point-of-view now active on our side of the Atlantic, has been the norm in Europe since the end of the Second World War, hence the prevalence of the charter and fractional providers over there.

I’m not saying that any of this is bad; however America is just not like Europe. Their model will not fit our business environment. Our industry will suffer mortally though, if the Middle East continues to take on debt without encouraging the much needed and generally forecasted growth, and Asia is unable to order itself into a politically stable region. If these scenarios remain in the so-called “bad zone”, we are all on the brink of a painful consolidation within our business sphere. I for one will shed a tear if Wichita and Seattle become second-tier, aircraft manufacturing cities due to a severe lack of demand, while the BRIC nations: Brasil, Russia, India and China take over and become the first tier. Okay maybe this is inevitable, but there is no reason why we can as a collective group, combat the European trend, and start educating the public and our elected officials, why the American way of doing business is the best for us, and largely for the rest of the World as well.

Use Caution When Comparing Costs

Last month I talked about a methodology to compare costs. I suggested that Life Cycle Costing is the preferred method in order to fully understand the total costs of owning and operating an aircraft. Even if Life Cycle Costing, I want to bring another point of caution to you.

What is covered?

We've done many benchmark reports and analyzed the costs of hundreds of aircraft. It is vital to understand exactly what went into the number is that you have.  If you have used Life Cycle Costing yourself, then you will have put forth the effort into your costs. But what about costs from other sources?

If your analysis suggests that an aircraft costs $1,200 per hour and your friend, who operates the same type, tells you $900 per hour, who is correct? Well, you both can be. Just what was covered in each number and what were the underlying assumptions?

Fuel cost is an easy example. For each hour that you fly, your aircraft consumes so much fuel. The $1,200 per hour assumed fuel at $5.25 per gallon while your friend used $4.50 per gallon. At 85 gallons per hour, you are different by $63.75 per hour.

Next up in variable costs is maintenance. But what maintenance is included? Scheduled, unscheduled, retirement items, engines? Are major cost items such as engine overhauls accrued as a cost per hour, or just shown as an average or an interval not equal to the time accrued?

Say you spent $252,000 on an engine overhaul due at 3,600 hours. The accrual cost is $70 per hour. If you have had the aircraft for only two years and flew 600 hours during that time, the “cost per hour” to you is $420 per hour. Quite a difference!  While that cost jumps out as obvious, add up a lot of $1,000 and $500 items. Taken individually, they seem insignificant. In total the effect can be substantial.

Maintenance costs can vary considerably and their cyclical nature adds to the fog surrounding using a single number. While Life Cycle Costing helps, you need to be consistent in the methods and length of time used. Even so, a five year cost period for a new aircraft will differ than a five year cost for a 10-year old aircraft. What maintenance happens when is important.

Training costs, new avionics, upgrading paint and interior, how much insurance coverage you have, whether you have three full time crew or two full time crew and one part time contract pilot, and so on all can add up to significant differences in the cost. 

When you are analyzing and comparing costs from different sources, you need to know what methodology is used and what the numbers include (or exclude). The more detail the better as you can easily be lulled into a false sense of security when two big numbers are close together. Ideally you should run all the numbers yourself using as close to the same assumptions and sources as possible.

Lastly, please keep in mind that every serial number of a single model does not cost the same to operate. In the real world some folks will see higher costs than others, especially in the area of maintenance. Ask questions and understand that "your actual results may vary."

YouTube Turns 5: How technology is changing business and how we can help

News Flash: The Internet is changing the way we live our lives.

OK, so that is not news. And this post is not, per se, aviation related. However, it makes an interesting point that applies to the airfield and everywhere else. brings us news as YouTube celebrates its fifth anniversary that the video site dwarfs the number of people watching network television in prime time.

The article above goes as far as to wonder whether YouTube will replace broadcast and subscription TV altogether in coming years. Considering its impact in a half decade, it is an idea that is not out of reach.

As mobile entertainment and communications platforms continue to morph with technology, iPads, Droid phones and Skype, it changes the way we do business.

For instance, we now have a feature so someone interested in buying an aircraft can send a text message to the person selling it. Clients are meeting face to face via web cam.

Information is more accessible and moves much more freely. Just as the aircraft revolutionized business and personal travel in its golden age, information technology continues to do the same today.

It is important to make sure your business is visible in the ever-growing 21st Century marketplace.

We have delivered many tools over the years to help aircraft sales departments and FBOs do just that, and we are hard at work creating even more such platforms.

As a destination for pilots and flight staffs to find aviation information, we are a high-value target for anyone in the industry to utilize to get seen. 

Register for a My Flight Department account, list your business in our aviation directory, advertise with us.    

Weigh in below and let us know what you like about what we have done with the site, and what you would like to see.    

Thanks again for reading.

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