FLYING Finance arranges loans from $25,000 to more than $10 million, on everything from a 1950s Navion to new turbine aircraft. Kimsey Bell and Jackson Moore explain what lenders look for in each segment.
Banks, credit unions and other lenders have entered, exited or moved up market in recent years. Here's how financing works from entry-level experimentals to turbines and helicopters.
Q.For first-time buyers and builders in programs like those at Sling, Van's and Bearhawk, how has lending changed, and what are your go-to tips?
KimseyI like to explain aircraft financing as a seesaw. On one side, you have the borrower, and on the other, you have the collateral, the aircraft. The stronger the borrower's credit and financial profile, the more flexibility a lender may have when evaluating the aircraft itself. That could allow financing on an aircraft with missing logbooks, damage history or other issues that would be harder to finance for a weaker borrower.
The opposite is also true. If the borrower's profile is weaker, the aircraft and its overall condition become even more important to the lender.
One area where lending has tightened considerably is the older light twin market. These aircraft are still financeable, but underwriting guidelines and loan parameters have changed quite a bit since I started in the industry.
JacksonBe grateful there are banks that choose to lend on such a niche and complex asset class! Lenders in this space are understandably choosy, and it's often the aircraft rather than the borrower that holds up a deal.
For experimental, light sport, lower-priced or niche aircraft, if the airplane is airworthy, in annual, has its logbooks and is U.S. registered, it can usually serve as collateral. For niche airplanes, we may need a professional appraiser to provide a value banks can lend against (see how appraisals drive loan-to-value). And for any plane with a cult following, think a meticulously restored Globe Swift or Bonanza, the market price is often well above what a bank can assign to it.
JacksonI'd discourage first-time buyers from trying to offset their costs by buying an airplane and leasing it back to a flight school. The idea has been passed along for decades by flight school owners and CFIs eager to expand their fleets. It rarely works out for the owner, and we generally can't find funding partners for that ownership structure.
The picture is different for experienced, well-qualified owners investing in aircraft such as a newer Cirrus or Diamond. Those aircraft are less likely to be used for primary instruction, and they sit at loan amounts lenders will pursue. When the owner can afford the aircraft without the leaseback income, and the aircraft will see a more limited number of pilots, the risk profile is far more appealing than a student pilot relying on leaseback income to make the payments on a trainer under $200,000 that may see heavy use before the student even solos. Schools building a fleet can also look at flight school fleet financing.
Q.FLYING Finance finances a lot of backcountry aircraft, from Aviat to Kitfox. What should new backcountry owners keep in mind, and what do you vet on a used experimental?
KimseyI strongly recommend reaching out to your insurance provider early and getting a quote specific to backcountry flying or float operations. Those activities can significantly affect premiums, depending on your experience and how much time you have in type or in conventional-gear aircraft. It's much better to understand those requirements and costs up front than to run into surprises late in the financing process. (Our aircraft insurance guide covers what underwriters look for.)
When it comes to experimental aircraft, lenders generally prefer established manufacturers and aircraft with a recognizable resale market. We receive requests for niche experimentals where only five or six examples have ever been built, and unfortunately, not every experimental aircraft is financeable.
Marketability is a major consideration. Lenders want to see a reasonable resale market, limited or no accident or incident history, and complete, well-maintained logbooks. The more established the aircraft and its documentation, the more financing options we're likely to have.
For more on vetting a used homebuilt, see KITPLANES' So, You Want to Buy a Used Experimental Airplane and AVweb's Tailwheels: Checkout and Owning.
Q.For SR22T, M350, PC-12 and Vision Jet buyers, which is more common: 15 percent down with a 20-year amortization, or low loan-to-value financing with simplified underwriting? And what's different at this level?
KimseyIn most cases, borrowers are looking for the lowest rate, longest term and least money down. However, there are situations where a simpler underwriting process matters more, particularly for clients who want to close as quickly as possible.
With turbine aircraft, it's important to understand that most financing structures include a balloon payment. Buyers should know up front that they have options when it comes due. They can refinance the remaining balance, pay it off or, as is often the case, upgrade to another aircraft. Many buyers plan to move into something different within three to four years anyway, so a balloon doesn't have to mean long-term ownership.
Engine programs are another important consideration. Most lenders require turbine aircraft to be enrolled in an engine program, with a few exceptions. Being on a program generally opens up better financing options because it limits the lender's exposure to potentially large engine maintenance costs.
Ultimately, it comes down to the borrower's priorities, how long they plan to own the aircraft and how they want to structure the financing. Understanding those factors up front helps us find the best combination of rate, term, down payment and underwriting requirements.
JacksonPiston customers typically stick with 15 percent down and 20-year amortization. Turboprop and jet customers often have more cash to deploy and tend to choose low loan-to-value programs, not only because of the current capital markets but because they can skip tax returns and full-documentation underwriting for a faster, simpler closing. Lenders require engine programs, but those programs also benefit buyers by smoothing out the unpredictable costs that loom over piston owners.
JacksonAt the high end of the market, placing a jet or turboprop with an established Part 135 operator can be a sound way to offset ownership costs. You can't own that jet for free, and if an operator promises a guaranteed net profit, be skeptical. A realistic target for a managed Part 135 aircraft is to offset ownership and travel costs by 30 to 50 percent, and in good years you may approach break-even. At the piston ceiling, such as the PA-46 and SR22T, some charter options exist, but the offset is typically lower, around 15 percent.
See how Part 91 ownership with a limited charter offset works.
Model the payment, engine program, insurance, hangar and fuel together. For a deeper look at structures, see FLYING's turbine aircraft financing guide.
Q.Jackson, you have several hundred hours in rotorcraft. What's different about financing a helicopter?
JacksonThe lending market is tighter, and loan terms may be tailored to the specific aircraft. For example, a bank lending on a used helicopter with life-limited parts or costly overhaul schedules will want to structure the loan to plan for those predictable costs.
Because of the high operating costs, nearly all of our helicopter loan requests come from business operators rather than private Part 91 flyers. We also haven't seen the same interest in buying and leasing to flight schools. Large leasing companies that provide Robinsons and similar aircraft to flight schools seem to be a better fit for the helicopter industry than student- or school-owned aircraft.
Q.How is that moment of exhilaration different as a helicopter pilot than when you rotate off the runway in a fixed-wing aircraft? And where does an uncrewed R44 fit, somewhere between a drone and flying a Robinson or Bell from the seat?
JacksonI find helicopters much more exciting! The sensation of speed is greater because you operate close to the ground, and because you can generally land in any direction, using the wind is more satisfying. The stick-and-rudder skills don't transfer, and helicopter pilots often operate with more autonomy, making on-the-go decisions about where to land. As for self-flying helicopters, someone learning today still has a career ahead of them before autonomous VTOL aircraft replace conventional ones.
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