When to Start Shopping for Aircraft Finance

How long does it take to secure financing when buying a business aircraft? When should buyers begin the process? There is plenty to consider to ensure an aircraft transaction runs smoothly, as highlighted by René Armas Maes...

When beginning to shop for aircraft finance, there are two common approaches among prospective buyers. The first is to assess one’s financial situation. The second is to identify the right aircraft (which should meet approximately 80% of your travel needs) first, then explore what’s affordable in terms of aircraft financing. Only then will the buyer decide whether new or pre-owned jet for sale is the best option.

For either approach, the ultimate goal is to find an ideal business aircraft, at an appropriate price, under the right financial model, based on your current and forward-looking financial situation. That financial outlook should be comprehensive, including an evaluation of both fixed- and variable-rates, balloon payments, and more. So time must be given to preparing it.

Which Financing Mechanism(s)?

Similarly, it’s important to get an early understanding of which mechanism (or combination of) can be used to finance the aircraft acquisition. There are several choices, including:

• Cash: As the saying goes, cash is king. In this case, it can allow buyers of new aircraft to negotiate important Original Equipment Manufacturer (OEM) discounts and other sales incentives (i.e. extended warranties, third-pilot initial and recurrent training, and more).
• Down payment: The larger the down payment, the better the financing conditions will be, including preferential interest rates that can be further negotiated.
• Debt financing: Will the aircraft be financed using bank debt or capital market debt? Either option brings different requirements in terms of paperwork, timelines and interest rates, for example.
• Commercial bank financing: You may find your bank is keen to finance your acquisition.
• Lessor financing: A number of leasing products – including operating and financing leases – can be secured, depending on a buyer’s needs, appetite for risk, and profile.
• Non-bank financial institutions: There are a significant number of non-bank fiscal institutions in the business aircraft market today. However, you’ll need to take care that the interest rates offered are not higher than those of commercial banks. This can be the case where financing sources command a higher transaction margin.
• Financing via Export Credit Agencies (ECAs): This method includes the US Export-Import Bank (Ex-Im), Export Development Canada (EDC) and the European agency, all of which offer loans and structured financial leases for brand-new aircraft.
• OEM financing: When buying new, the OEM may directly or indirectly (i.e. through a financial partner) provide a financing solution.
• Aviation focused lenders: Many financial institutions specialize in aviation assets and can be a very good source of aircraft financing, and also knowledgeable of the financing, transaction, and aircraft closing process.
• Aircraft brokers: Don’t rule out a knowledgeable aircraft broker from being able to assist in financing.

After Considering Your Options…

The next step is to review your current financial situation, as well as your business/personal cash flow requirements for the next three to five years, before deciding how you will pay and finance the aircraft.

Will you pay with 80% cash and debt financing, for example? What down-payment will you place, and what combination of down-payment and financing makes the most business sense for you? Perhaps a lease is more beneficial to your specific needs? If so, should it be an operating lease or capital lease?

As a result of assessing your financial situation, you should be able to determine the best five financing structures for your acquisition needs, as well as the amount to be financed.

A shortlist of potential financiers needs to be drawn up (bank/debt/lessor/aviation focused lender, etc.), and their lending terms, conditions and interest rates (fixed, variable, or a combination of both) should be identified, as based on your anticipated flying profile (business, personal, or both).

Follow up with a second shortlist containing two to three financial institutions, and gather all of the documents required to submit a pre-loan application. This is likely to include tax returns, business and personal financial statements containing personal net-worth information, and various others.

When the loan application is complete, you should expect the process for typical business aircraft loan due diligence to take between one and three weeks (depending whether the evaluation is for a single entity with no business affiliates, or a holding company with subsidiaries).

The fact of whether the loan is for 100% aircraft ownership or shared ownership will also have a bearing on the time taken for the bank to complete its due diligence. And, after the process is complete, an aircraft loan decision may take another two to five working days, followed by an additional business week to close the financing structure and loan.

Allow Plenty of Time

All told, arranging for aircraft financing could take anywhere between two and six weeks. The key is to plan accordingly, setting up a timeline with a buffer (at least one additional business week) to avoid any purchase-related stress.

A different approach would be to reverse-engineer the process, getting pre-approval before looking for the aircraft you need. This is a clever strategy, allowing you to work backwards, and to know in advance how much money you can borrow, while locking interest rates for a pre-determined period.

Before reverse-engineering the process, you will still need to provide an approximate aircraft purchase timeline to your shortlist of financiers, along with the aircraft type and model, approximate year of manufacture, and amount you expect to borrow.

Build a Team of Experts

Before you can close the financing deal and fly away aboard your newly-acquired aircraft, however, remember that many other aspects of the aircraft procurement process still need to be considered…

It’s always wise to have a professional team of experts you trust available to help with the process, because narrowing down the aircraft financing options may only be the first step in closing a transaction.

Other key steps when buying a business aircraft include proof of insurance, contract negotiation and Pre-Purchase Inspection. And due diligence will be needed with ground and flight test since squawks may be identified that require resolution prior to the transaction completing.

To Conclude…

End-to-end, the process from selecting the aircraft financing method to the title transfer of an aircraft can take two to four months (depending on many of the variables discussed above). Additional, time-consuming due diligence processes can be expected when buying a pre-owned aircraft, including the pre-purchase inspection, legal matters, and escrow account set up.

The bottom line is that starting the aircraft financing process early is key, since aligning Finance for BizAv in advance of an aircraft purchase can certainly assist buyers in expediting a closing, while avoiding unnecessary hiccups and stress.