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Financing An Aircraft May Be Easier, but Lenders Insist on Transparency
October 12, 2011
The worst of the country’s financial crisis may be over, but its impact on business aviation is not, as banks, leasing companies and other lenders more closely scrutinize the credit worthiness of borrowers and the quality of the aircraft being financed. Despite some perceptions, however, lenders are making more loans to those who qualify, although standards are much tighter than those that existed before the economic downturn.
Those were just a few of the observations offered at a Tuesday afternoon session that provided a financing and leasing update from a panel of three experts on the topic: Glenn Hediger of Aviation Financial Consulting, LLC; Ed Kammerer of Hinckley, Allen & Snyder, LLP; and Dave Labrozzi of GE Capital Corporate Aircraft Leasing.
Attendees also learned about possible aircraft leasing changes on the way. A standards agreement proposed by the Financial Accounting Standards Board (FASB) in the U.S. and the International Accounting Standards Board (IASB) would make aviation leases more like traditional loans. Those changes, which still are under review and seek to more closely unify the two standards, would not take affect before 2014.
The panel reported that financial conditions have improved since the peak of the recession, when funding for aviation lending all but dried up. But while the number of funding sources remains below where it was before 2008, availability has improved.
When applying for financing, the experts advised Attendees to be prepared to open their books to prospective lenders, who now insist on “complete transparency” when dealing with corporate borrowers. They also said that borrowers should get loan approvals earlier in the aircraft purchase process.
When it comes to financing a used aircraft, many lenders have imposed tighter limits on the age of a plane or jet. While some balk at financing purchases of aircraft more than 10 years old, others – such as GE Capital – will consider aircraft as old as 20 years. However, said Labrozzi, at GE Capital Corporate Aircraft Leasing, his company also looks closely at a number of factors, including the quality and condition of the aircraft.
The good news is that new players are entering aviation finance, and banks are more eager to make deals. The panel said, however, that financing remains tighter than before the crisis. Lenders also are asking borrowers to have “more skin in the game”, which means generally they are asking for larger down payments on loans and bigger deposits on leases.
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