Keep Your Banker Happy

Financing rates for loans and leases are very low. Yet it isn't easy to get financing and the paperwork can be daunting. If you are looking for a lease or a loan for an aircraft, here are a few tips to help you help your financier.

Educate your financier as to how your lease or loan is a great risk. There is plenty of money to lend and financial institutions want and need to do business. They need to do transactions, but they also need to carefully manage their risk. It is up to you to provide them the information they need demonstrating you are a good credit risk. That means lots of financials of course. But is also means that the individual you are working with needs to understand your business.  Much of the decision is based on analytics, but there is room for judgment.

Your local banker with whom you have had a long term business relationship may be more likely to support your need for financing, even if they don't know much about aviation. Educate them on the lower depreciation that aircraft have relative to other transportation forms. Yes, since 2008 aircraft resale values have not fared well, but relative to trucks, they are a much better risk with a much longer life. That may not be obvious to your banker.

Pick your aircraft like a banker or risk manager. New aircraft are easier to finance, but older aircraft do get financing. Turbine financing rule of thumb: aircraft age at the start of the lease/loan plus the length of the term should not exceed 15 years. Example: your should be able to get a five year term on a 10-year old aircraft. Don't expect the five-year term on the age 20 aircraft. Also expect to put 20% down on the loan - more if the aircraft is older. That down payment is the cushion the banker needs to keep what is owed well under what the outstanding debt is at any time.

Reducing financial risk also means that the banker will favor, or even require, a guaranteed hourly maintenance program on at least the engines. This is routine with leases. Lease return conditions generally require all components have at least 50% of their useful life remaining or you pay a detriment adjustment. The engine guaranteed hourly maintenance program both covers the time to overhaul adjustment plus makes the returned aircraft at lease-end more popular in the resale market, either in another lease or as a sale.

Plan on time to research and secure your financing. Talk to your banker early in the acquisition process and see what information they will need. You may need to check out several sources. One banker that deals with turbine equipment up to $5 million in value isn't likely to want to do a deal on a new mid-size business jet. Know who and what your options are.

There are a lot of financial uncertainties in any time. Right now the oil/energy markets, China, the Middle-East, and the US election are in the front of their anxieties. When looking for financing or a lease, don't add to them! And yes, cash is and always will be King.