Bank Of America Aircraft Financing - The business jet financial market is changing, as is the rest of the world economy. It has become more regulated, more conservative and more international. Their biggest challenge is the excess cash available to many aircraft buyers without a credible place to invest. Banks in a similar situation prefer to lend money to people who don't need it, and in today's business jet market, there are more people than ever before. However, if you are looking for financing, here is a strategy to find the best deal.
1. Find the right plane at the right price. Most aviation financial institutions - even those that claim to be "asset-based" - are "credit shops". They focus entirely on the ability of customers to repay the amount financed. But that doesn't mean they completely ignore the plane; banks always want to make sure you don't overpay and that the value of their collateral won't sink like the Titanic. Make sure you get expert advice on the value of your chosen aircraft, and remember that the older it is, the harder it is to finance. Also, make sure it's right for your needs because you won't be charged a penalty for paying off a loan early or getting out of a lease because you bought too much or too little aircraft for your travel or budget needs.
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2. Pay attention to the time. At times, aircraft financing was arranged almost overnight. No more. If you want financing, start the process as soon as possible. You can get a good idea of financing costs and terms by talking to a lender about the general airplane model, model year, and estimated purchase cost before signing a letter of intent to purchase.
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3. Determine who will buy the plane. It sounds simple, but it can be a complex matter. If you are a first-time buyer, we recommend that you engage an aviation consultant early in the process. Factors that influence who buys an airplane include liability concerns, FAA ownership and operating rules, often-hidden tax considerations such as "at-risk rules," public company reporting requirements, and the ability of business partners or others to use or pay for the aircraft. ability. The identity of the buyer will also have a direct impact on the choice of financial institution. A business firm wouldn't get an airplane loan from a private bank, but a CEO would.
4. Decide whether to borrow or rent. For most aircraft buyers, the availability of tax benefits will determine this choice. You can use tax depreciation, a problem can be the best option; if not, consider renting, where you can still benefit from tax write-offs through lower financing costs. If you are not sure, ask for proposals for both. Note, however, that while all aviation financial institutions provide loans, many do not offer leasing.
5. Choose credit or asset-based financing. If you want your engine to weigh more heavily on the value of the aircraft than on your credit, you'll have limited options, and if you want non-recourse financing, you'll have even fewer options. A related issue is if you need the most flexibility in structuring your financing, in which case you may be better off with a banking institution that is less bound by federal and state banking rules and regulations.
6. Consider relationship-based financing. Aircraft financiers differ in their willingness to lend based on transactions; otherwise, he cannot do business with the bank otherwise a financing. In other words, if a bank focuses primarily or exclusively on aircraft financing for existing customers, you should probably look elsewhere if you're not one of those customers. Your private bank, for example, may offer very attractive financing terms for the purchase of an aircraft, allowing you to leverage an existing relationship. Note, however, that the aircraft loan through your private bank will be cross-collateralized with other assets pledged to the institution. In addition, a "relationship" can hurt if the bank already has too much credit exposure for you or your company.
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7. Requesting proposals. After doing your homework, you are ready to request proposals from various financial institutions. Your purchasing advisor should be able to suggest aircraft financing options for you to consider. In addition to financing, loan or lease, fixed or variable rate and recourse or non-recourse amount, you should also ask for a term, payment proposal and possibly repayment proposal. A 12-year 100 percent loan on an 18-year-old airplane with a 25-year amortization will likely find few borrowers, but a five-year 80 percent loan on a five-year airplane with a 10-year amortization may be sufficient. popular You won't know until you ask.
8. Negotiate your deal. This is the key moment. Then a little creativity goes a long way; for example, negotiating to add an option to switch to fixed rates in the future as part of a low-cost floating rate deal. Remember that proposals are usually confidential, so don't send one lender's proposal to another lender to try to get a better deal. But you can certainly let the lender know if their terms aren't competitive with other offers you've received.
9. Make your choice. Don't assume that you should only choose the lender that offers the best overall finance deal. It is an important consideration, of course, but not the only one. Does the engine have a history in aviation finance, or is this one of the earliest or few entries into the field? Can the lender deliver on their promise, especially at closing time?
10. Return the agreement. Your lender will need to do due diligence - on you and/or your company, the aircraft and the underlying purchase agreement. Tax returns, financial statements, purchase agreement, purchase report - he'll want to see all sorts of things. A written evaluation can also be requested. Make sure your aviation attorney reviews the financing documents. Aviation transaction lawyers do this all the time, and often more effectively than high-priced financial advice. They know where the plane's skeletons are buried: Part 135 flight bans, flight hour limits, unreasonable lease return terms. The point is to hire an expert.
Change Is In The Air
Business Jet Traveler is a publication of AIN Media Group, Inc., 214 Franklin Avenue, Midland Park, NJ 07432. Copyright 2023. All rights reserved. The aviation sector has endured two difficult years amid closed and closed borders. Despite persistent volatility and uncertainty, our survey finds that senior executives are cautiously optimistic about the state of global aviation finance in 2022.
The past two years have been turbulent for the aviation sector, with numerous bankruptcies, bailouts and revenue collapses caused by the coronavirus pandemic. The impact on airline receipts has been challenging. In fact, the difference between projected and actual payments suggests that airlines have lost nearly $1 trillion in passenger revenue due to the pandemic.
Rebuilding budgets and restoring passenger confidence will take time. Uncertainties lie ahead, and (as the rapid spread of COVID-19 variants reminds us) there is no room for complacency.
First, airlines and lessors now have access to a wider range of financing options than ever before. Innovative financing is a daily occurrence: in addition to traditional sources such as banks, capital markets and export credit agencies, the aviation sector is increasingly tapping into financing from alternative capital providers, including private equity and hedge funds. High net worth individuals and family offices are now part of the mix, along with new capital market products such as green bonds.
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Second, and closely related to the evolution of the financing environment, there is a growing awareness of environmental, social and governance (ESG) issues in aviation. Airlines and lessors - and the investors who support them - are taking the first steps towards the decarbonisation of aviation from the development of sustainable aviation fuel (SAF) to the short-lived electric aircraft.
"Uncertainties lie ahead, and there is no room for complacency. However, as this survey shows, there are also tempting reasons for optimism."
This matters because the future of aviation is as much a battle of hearts and minds as it is about technology. COVID-19 has turned many of us into telecommuters, and the rise of the "staycation" has reminded travelers of the good times they can spend close to home. It is possible to recover passengers - especially business travelers. Against this background, all types of travelers are increasingly aware of the impact of their trips on the environment. Given this, even small steps to boost airlines' green credentials can make a difference.
The aviation sector emerging from the pandemic is likely to be very different from what it was two years ago.
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But it is also a sector that is likely to be more flexible, lighter, a bit greener and, above all, better adapted to what the future holds.
In the fourth quarter of 2021, White & Case, in partnership with Mergermarket, surveyed 100 senior executives at entities they have funded or invested in.
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