Most Banks Won't Finance Jets More Than 20 Years Old

An interesting dichotomy exists in the finance world today, one affecting potentially every pre-owned bizjet buyer, according to GA analyst Brian Foley. On the one hand, with 2009's credit crisis now abated, banks are back in the game and ready to lend (or so they say). On the other hand,  pre-owned aircraft brokers complain their client's loans are often not approved. And the reason, he says, is that banks see airplanes differently than they have in the past

What every buyer needs to understand, Foley says, is that loans are evaluated very differently now. Residual values have plummeted, so today's loans are based more on the borrower's balance sheet and less on the [repossessed] asset value of the aircraft, although that continues to play some role.   Most banks won't finance jets more than 20 years old.  For some, even 10 years is the cut-off point. Down payments are also higher. Gone are the days when a buyer could borrow more than the aircraft's price (say, 115%) with no money down and invest the difference in improvements. Today's buyer can expect to pay 10 to 20 percent down.    

As a result of this tighter lending situation,  Foley's brokerage contacts report that upwards of 70 percent of their sales this year have been all-cash, compared to a much smaller percentage in the past.

All this relates back indirectly to the new plane market, Foley says. Much like real estate, that won't really move again until the glut of quality used inventory sells first. But with lending more restrictive now, the road to recovery feels like it's paved with quicksand. Even so, as far as pre-owned buyers are concerned, Foley says there is still good financing available ... but only to the best credit-risk operators seeking younger, better-quality airplanes.

FMI: www.brifo.com