All posts tagged 'aircraft financing'

Jurassic Jets

Are older business aircraft even sellable? And how old is OLD?

At the recent NBAA convention in Las Vegas, I sat in on several briefings about the state of aircraft sales and residual values. It was unanimous that older aircraft are not selling. No news there. It's been that way since 2008. What was interesting is the speakers' definition of "old."

I've been going with older than 15 years as "old" in terms of the ability to sell at a reasonable price within a reasonable amount of time. Age 15 also works with getting financing: The Aircraft Age + Length of Lease/Loan should not exceed 20 years. Age 15 allows for a five year financial deal. It seems like the new "old" is younger than that. And no, we can blame it on the Millennials. Blame it on the economic booms of the late 1990s and again in the mid-2000s.

An "old" business airplane is now older than age 10 in terms of maintaining a residual value and being sellable.

Glancing through the GAMA shipment database by year, business aviation saw significant increases in sales and deliveries during the past 15 years. Many manufacturers saw their sales double, peaking in delivery backlog in about 2008. Thus, there are a large number of relatively recent vintage airplanes available that are in the 5 to 15 year group, and especially aged 5 to 10.

The future air navigation systems that have been developing are in place or will be in the next decade. New or nearly new aircraft are either capable of using the full airspace, or can be easily upgraded. Older aircraft may not be so easily updated, especially older business jets that need the upper altitudes for efficient flight.

Older business aircraft, especially jets, have operating costs significantly higher than their new equivalents. A second or third overhaul on most turbine engines will be very costly due to retirement components within the engine. Unscheduled maintenance is also much higher for these older aircraft.

Lastly, emerging markets outside the US can, and do, purchase mostly new or newer aircraft. Developing nations are adopting the EASA regulations as it relates to aircraft aging issues. Some even place an age limit on imported aircraft.

So we have a large number of recently produced aircraft, many with updated avionic systems, that can be purchased for quite reasonable prices. Financial institutions have the money to lend, provided the credit is excellent. The 20 or 30-year old airplane costly to maintain, and sending them to a developing nation to sell isn't viable. These aircraft are just not selling. Let’s take a look at an example.

Jet Years produced Percent Fleet For Sale Average Days Listed For Sale
Gulfstream GIII 1979-1987 18% 828
Gulfstream GIVSP 1992-2002 13.56% 375
Gulfstream G450 2005-current 7% 239

You can buy a used GIII for under $1 million. But almost no one wants one even at that price. Newer GIVSPs and especially the G450 have a market.

One of the speakers referred to the oldest business aircraft as "Jurassic Jets." They are from a bygone era of cheap gas. They are not selling and the financial institutions do not want them on their books. From what the speakers say, and I agree, this is not going to change. Many of these aircraft are with their last owner.

Jetcraft Opens New Office In Hong Kong To Better Serve Growing Market For New and Pre-owned Business Aircraft

 

New business unit Jetcraft Asia to best serve clients by blending industry expertise with regional market knowledge
 
RALEIGH, NC, Feb. 28, 2012 – Jetcraft Corporation, a provider of business aircraft sales, acquisitions, trading and brokerage services, today announced the opening of a new office in Hong Kong, China, under the Jetcraft Asia banner.

“We believe that this is the right time to establish a permanent presence in Asia,” says Chad Anderson, President, Jetcraft Corporation. “While we have been active in the region for years, we have done so without a formal presence. Based on the projected growth of the Asian – and particularly the Chinese – market, we are now directly serving the region. By blending our proven approach to business aircraft sales with a team of Hong Kong-based industry professionals, we believe that Jetcraft Asia will offer buyers and sellers superior market intelligence and an in-depth understanding of regional business and regulatory issues. Speaking for the entire Jetcraft team, we are very excited about this latest step in our company’s growth and evolution,” adds Mr. Anderson.
 
“From our new office in Hong Kong, we will be able to best represent client interests in Asia,” continues Jahid Fazal-Karim, Co-Owner and Board Member, Jetcraft Corporation. “Traditionally, the Asian market has favored new business aircraft. However, we predict a growing market for pre-owned aircraft, particularly in China, within the next five years. Locally-registered aircraft are likely to remain in China since transferring registration in-country is generally simpler than importing and registering aircraft. Given Jetcraft’s commitment to offer comprehensive services in multiple markets with consistent quality, establishing a permanent presence in Asia was the next logical step for us. Jetcraft Asia will leverage regional market knowledge and our proven approach to remarketing aircraft in order to tailor solutions for our clients globally, both within the region and from elsewhere – whether selling into or buying from Asia,” concludes Mr. Fazal-Karim.
 
For more information or to contact the Jetcraft Asia team, please visit
https://jetcraft.com/company/international-operations/

About Jetcraft Corporation
 
Jetcraft Corporation is an international leader in new and pre-owned business aircraft sales, acquisitions and trades. Headquartered in Raleigh, NC, Jetcraft has sales offices/representation in five US cities; Basel and Zurich, Switzerland; Dubai, UAE, Moscow, Russia and Hong Kong, China. The company’s 50-year-plus track record in aircraft transactions has earned it a world class customer base and one of the strongest global networks in the industry. Jetcraft Avionics LLC, a subsidiary of Jetcraft Corporation, provides distribution of Enhanced Flight Vision Systems (EFVS) for aftermarket business and wide body aircraft using Elbit-Kollsman’s state-of-the-art EVS-II and AT-HUD. For more information, please visit
www.jetcraft.com.

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.

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