Five Tips for Aircraft Financing/Leasing

There is money available today if you are interested in financing or leasing a business aircraft. Interest rates are still low. Here are five rules for getting financing or leasing.

Rule #1. Dance with the one you brought.

Relationships matter. Financial institutions are looking for long-term relationships. If you have done significant business with one institution over the years, they are the first ones to approach for any aircraft financing or leasing. One private banker told me "If you have $300 million in assets with (my bank) there is no way we won't do an aircraft deal with you." Part of this is the significant investment the financial institution has made in keeping you, and your cash, in the bank. The other is that in cultivation and supporting your business, they have a very good idea as to your character.

Rule #2. Character counts.

The Four C's of financing are Character, Credit, Collateral, and Cash Flow. Do you have the credit available for the deal in mind? Aircraft deals can be far more complex than other assets. Any financial institution needs to manage and measure their financial risk and it starts with your credit. Another part in managing the risk is what other assets do you have to guarantee the aircraft deal? Standalone, the financial institution may not want to do interest-only financing, but if you have cash, stocks, and other investments well in excess of the aircraft value, then the risk is lessened. Can you keep the aircraft flying? For $2 million you can buy a 15-year old turboprop or a 22-year old large cabin jet. However, the annual operating budgets are going to be vastly different. Can you afford the $3 million engine overhaul on the jet? Character, whether are you a person of your word, counts more than all the above.

Character ties into rule number one above. The financial institution wants to know, not only from a balance sheet perspective, but from who you our your company is, will you stand by the deal? Given enough money for lawyers, it seems like most contracts can be broken or amended. The financial institution is looking for a trustworthy account.

Our company founder and dear friend, Al Conklin, told me that he measured every sale by the value of the person's handshake. If he didn't trust the person, no amount of legal contracts and forms would make him feel good about the deal.

Rule #3. Get what you need, don't overbuy. 

Aircraft are wonderful business tools. They get you to many places far faster than any other mode of transportation. They enable you to make the out of every minute and do so in a safe and secure environment. Given the availability of pre-owned aircraft you can easily step up in size nod capability for not a lot more money. Get the aircraft that does the majority of your flying in a cost effective manner. Need or want the big cabin plane? Then charter one when necessary. 

I had one client who would not consider a plane in which he could not stand up in the use the lavatory! The smaller cabin jet was less costly to own and operate, but he wanted and was willing to pay to stand. He ended up not buying and continuing to charter. If you do decide to upsize, make sure you understand the ramifications of the budget and are willing to pay.

Rule #4. Communication is key. 

For the lessor, lender, or insurance broker to make sure you get the best service, make sure they understand how you plan to use the aircraft. Will you be doing charter? Will it stay in North America or spend a lot of time in other locations? Are their management agreements? If so, is the financial institution protected adequately in terms of a loss or lien?

Rule #5. Plan.

While a cash-only transaction can be done in the time it takes for a wire transfer to occur, even the aircraft registration process will take more time than that. A US-only financed deal can take three to four weeks at the absolute fastest. Better plan on a month or more. If there are two countries involved, if the Ex-Im Bank is involved in the financing, plan on three to four months minimum for the deal and the importation of the aircraft. 

Financing or leasing a business aircraft is complicated and involves significant finances. You should have qualified aviation legal and tax advice.