By Wayne Starling, PNC Aviation Finance
As the economy has improved over the last few years, aircraft owners and purchasers have more choice when it comes to choosing an aircraft lender. What options do the high net worth owner, entrepreneur, or CFO/CEO of a closely held company have at their disposal? What makes one lender different from another? Relationship Lending Aircraft purchasers and owners frequently start their financing search where they have an existing banking relationship. Their current business lender knows the principal, the operating company behind the principal, and probably the financial condition and disclosure that will ultimately be requested by most lenders. Depending on the loan structure they may require guaranties from the principal, operating company, and require ongoing financial reporting and financial covenants. Some relationship banks may have aviation financing experience or elect to provide financing for only their existing customers. If they lack in-house expertise, they may require outside counsel, which could increase overall closing costs. High net worth individuals with significant liquidity may pay cash for their new aircraft. However, in many cases, they might be leveraging or selling some portion of their stock portfolio in order to complete the purchase. This can reduce their investment flexibility. It is worth noting that in 2014, over two-thirds of jet and turboprop purchases were made with “cash.” This is an increase from the historical 50 percent level and may reflect lingering concerns about the perceived difficulty of obtaining aircraft financing in the post Great Recession era. These cash buyers frequently finance after their purchase in order to either return cash to their portfolio or deleverage their securities portfolio. Given the low rate environment, aircraft loan proceeds may be invested in other, more lucrative investments. Asset Based Lending Over the last fifteen years has become a viable option for many seeking aircraft ownership. The benefits are numerous and may include the following:
• No financial disclosure or covenants
• No or limited personal guaranties
• No requirement, in many cases, for the owner’s operating company guaranty; this may be very important for companies that have bonding requirements limiting the amount of debt or guaranties than a company may incur. There may be partners involved in the ownership and the owners may be unwilling to sign on the other partner’s debt.
Other Considerations
There are more regulations, oversight, and specific industry information in today’s aircraft ownership world than ever before. The same holds true for aircraft lenders. When inquiring about aircraft financing, remember to keep the following points in mind:
• Does your lender have expertise with the FAA requirements for citizenship, importation procedures, and general industry knowledge?
• Is the lender an experienced aircraft lender or do they provide “one-off” loan products as a special service for their aircraft owning clients?
• Are they familiar with the due diligence process required?
• Do they have an established network of industry resources including aviation insurance, escrow and title companies, 1030 administrators, and legal and tax specialists?
Finally, it is always a good idea to seek advice from the other parties involved in the aircraft sale/purchase process. Ask people familiar with the industry who they would recommend. Aircraft brokers and dealers, aviation attorneys and aircraft managers will be pleased to share their experiences and recommendations.
About the Author
Wayne Starling has led the PNC Aviation Finance Group for 15 years as Senior Vice President and National Sales Manager. It is part of PNC Bank, N.A., a member of The PNC Financial Services Group, Inc. (NYSE: PNC). The views expressed by Mr. Starling are his own, and 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 update are subject to change due to market conditions and other factors.