Corporate and personal aviation has returned, after being grounded, or at least stalled, in the wake of the Great Recession. Rising financial markets, growing corporate earnings, a strong U.S. dollar, and increasing consumer and business confidence are driving demand for private aircraft. Faced with crowded airports, jammed-packed commercial aircraft, and ever-present delays, high-net worth individuals and corporate executives alike are increasingly turning to private aviation to relieve the time constraints and delays of commercial flying and to take advantage of the myriad of smaller airfields located closer to their final destinations. Before ringing the airplane broker and kicking the tires, consider these financing options:
No different than your smaller purchases – like houses, cars and boats – your traditional aircraft loan can be fixed rate or floating rate. Some financial institutions offer a hybrid which features a floating rate loan with the option to buy a “swap.” In other words, you can lock in your rate and benefit from early payoff and interest rate increases. Not a bad idea in a rising rate environment. Traditional loans can be structured for as short as 30 months or as long as 120 months with amortizations as long as 240 months. Just keep in mind, the longer the terms, the higher the interest rate.
Over the last fifteen years, this type of financing has become an increasingly popular option for individuals and businesses seeking aircraft ownership without making financial disclosures or guarantees. Only a select number of organizations offer this product, but it has a number of benefits, including:
As with other types of large equipment, businesses as well as individuals may elect to lease an aircraft as an alternative to purchasing. An individual or business may have multiple reasons to lease instead of purchase, including cash flow considerations, federal income tax considerations, sales tax considerations and accounting treatment. There are several types of leases with the choice often determined by how the aircraft will be used:
Where do you start the journey to find a lender? Often, borrowers start their financing search where they have an existing banking relationship. However, that may not always be your best financial option.
General aviation industry knowledge should be a critical criteria for your lender. For example, does your lender have expertise with the FAA requirements? Are they aware of new regulations on the horizon that could impact your purchase? Does your lender have an established specialty in aircraft financing or only do an aircraft loan every once in a while at the request of a marquee customer? Is the lender credentialed with key trade associations like the National Business Aviation Association (NBAA), National Aircraft Resale Association (NARA), or and National Aircraft Finance Association (NAFA)? If you don’t know, aircraft brokers and dealers, aviation attorneys and aircraft managers are a good source for referrals and recommendations.
The views expressed in this article was prepared for general informational purposes only and does not purport to be comprehensive. The information and views in this publication do not constitute legal, tax, financial or accounting advice or recommendations to engage in any transaction. The views expressed in this publication are subject to change due to market conditions and other factors.