Aircraft Finance Lenders: Specialist or Generalist?

For some, a specialist choice of aircraft finance provider holds clear advantages. For others, generalist lenders hold appeal – but what are the pros and cons of each, and which option would be best for you?

Bob Mann, President of R.W. Mann & Company, an aviation consultancy, believes specialists will in most cases “have a much better idea of collateral value, trends in loan-to-value ratios, and offer more customized financing options – especially with Business and General Aviation aircraft”.

However, he notes that such lenders could work for either specialist aviation providers or be part of aviation-focused groups within more generalist providers.

One benefit of working with an industry-focused provider is that such companies “want to promote General Aviation”, Adam Meredith, President of AOPA Finance, says. His company provides a range of solutions tailored to individual borrowers, in both Business and General Aviation.

The company provides options, depending on whether a buyer is focused on rate, payment, chartering an aircraft, or a combination of different factors. The most common request is finance for buying an aircraft outright, though there has recently been an increase in operators looking for avionics upgrades and engine overhauls, Meredith says.

AOPA works as a broker and has relationships with many lenders. By providing operators with the right package for them, this also helps the industry at large. “By having more options available to them, more people are likely to buy aircraft,” Meredith notes. “We have the experience to help get buyers exactly what they want.”

Global Jet Capital is a specialist provider of lending and leasing solutions for business aircraft. Andrew Farrant, the company’s Chief Marketing Officer, says it dedicates its focus to Business Aviation and is led by experts in the area.

“We understand the ins and outs of the market, the asset class, residual values, and what it takes to structure and execute a successful transaction in what can often be a complicated landscape,” Farrant says. “This experience allows us to transact quickly and efficiently for our clients.”

Various providers aim to combine the advantages of specialist and general options. For example, PNC Aviation Finance is part of PNC Bank, which offers a range of aircraft finance solutions across various industries. However, the aircraft arm comprises nearly 40 aviation industry professionals who are focused exclusively on aircraft transactions, from marketing to underwriting to sales and servicing.

“We offer our clients the best of both worlds – a team with decades of experience in this industry and the backing of one of the largest financial institutions in the [United States],” said Ramy Sidhom, Head of PNC Aviation Finance.

Keith Hayes, Senior Vice President and National Sales Manager for PNC Aviation Finance, says the company provides a wide range of options for corporate aircraft owners, including asset-based loans, credit-based loans, fixed or floating rates, leasing options and more.

Importantly, he says: "Our team is exclusively focused on the Business Aviation industry, providing clients with expertise and a holistic transaction process from tip-to-tail.”

Choose a Partner Carefully

Over the past year the company has seen high levels of activity, Hayes reveals – especially with first-time buyers.

“Prior to the Covid-19 pandemic, this customer might have been utilizing private jet charter or fractional ownership, but now is interested in moving toward full ownership,” he says. 

“Due to this trend, extra care must be taken to walk the prospective buyer through the process to avoid any potential pitfalls or delays,” as well as to set the right expectations for the deal flow.

All of this means it is critical to choose a finance partner carefully, as well as other third-party advisors, like brokers and attorneys. “Having trusted advisors that specialize in business aircraft and have a vast knowledge of potential pitfalls will aid in successfully navigating this process,” Hayes adds.

“Engaging these partners early in the process was always a smart move, but now it’s critical.”

The Current Aircraft Finance Trends

Hayes notes the increased utilization of corporate jets, which generates continued interest in leasing. This demand is driven by the off-balance sheet treatment that leases provide, and the sales tax at closing.

While changes in accounting regulations mean they do not have the same off-balance sheet impact they previously did, there is continuing interest in both operating and synthetic leases.

Global Jet Capital has also seen rapidly growing interest in operating leases, Farrant notes. This offers a high degree of predictability around expenditures related to the aircraft, allowing the lessee to deploy capital elsewhere.

“With OEM backlogs stretching out, we are also seeing a lot of interest in our pre-delivery Payment product, which allows clients to finance the standard pre-delivery payments associated with ordering an aircraft that will not deliver for several months or longer.”

The biggest trend has been the continued strong demand, Farrant adds. This has less to do with financing and more to do with general market dynamics.

“Once the initial shock of the pandemic settled and people realized they needed to keep traveling, Business Aviation was more broadly recognized for the value proposition that has sustained it for the last 60- plus years: Productivity, flexibility, privacy and safety. Only now [due to Covid-19] safety includes health-related safety.”

There have not been any major shifts in financing, though in the low inventory environment being experienced currently, cash is helping some clients secure aircraft quickly and efficiently.

“Based on past experience, some of these cash buyers will look to unlock the capital tied up in their aircraft down the road, which will present opportunities for businesses like ours,” Farrant predicts. Meredith noted that with demand at historic highs, it has been difficult to find aircraft, while the average hold time of owners is shortening as they upgrade more quickly than normal.

“One of the things we’ve seen recently is a ‘thinning of inventory’,” he notes. “As a result, buyers have been actively shopping for a pre-approval, so as not to lose out to cash buyers.”

In Summary

In such a market environment, it’s vital that owners consider their aircraft financing options carefully, whether specialist or general. However, aviation analyst Brian Foley warns that operators should be particularly careful when dealing with smaller finance providers, some of which he says can be ‘our fair-weather friends’.

“They dabble in the market when one of their bank customers requests aircraft financing, but then quickly withdraw when the market heads south – often never to be seen in the industry again.”

More information from:

AOPA Finance – https://finance.aopa.org/

Global Jet Capital – www.globaljetcapital.com

PNC Aviation Finance – https://www.pnc.com/en/corporate-and-institutional/financing/lending-options/pnc-equipment-finance/aviation.html