Aircraft Lending – A Niche Market

Lately I’ve noticed that most aircraft lenders seem intent on carving out their own niche for lending. By that, I mean that most lenders are catering to a certain type of transaction rather than trying to be available to finance all types of aircraft transactions. Some lenders are focusing on aircraft transactions that are for turboprop or light jets valued at less than $1 million, while other lenders are focusing on mid-size jet aircraft $1 million to $5 million and still others are focusing on large aircraft valued between $5 million and $75 million. Some lenders are very concerned about the age of the aircraft while others are less concerned with the equipment and more interested in the client’s financials. Just this morning I received an email from a lender who intends to start financing aircraft. The email included the following language: new and used (no age limit) aircraft; minimum business aircraft loan size: $5,000,000; and our maximum business aircraft loan size: $75,000,000.

Recently I attended both the National Aviation Finance Association and National Aircraft Resale Association annual conferences. In addition to many valuable educational seminars, both events allowed me to have numerous personal conversations regarding available financing, loan and financing leasing structures, and lender preferences. Having the opportunity to speak with a broad range of aircraft lenders at these conferences, I realized it is important to ask each lender about the focus of their book of business. With the information I gathered, it becomes much easier to help clients find the right lender for the specific transaction.

It is a very positive indicator for our industry that more lenders are entering the aviation market. However, it is important to identify which lenders are available for your specific transaction. Owners looking to upgrade the aircraft they currently own to a larger aircraft often turn to a lender they engaged for a previous transaction. However, the lender from an earlier acquisition may not be the best contender available for a larger and more expensive aircraft. Having a go-to list of lenders based on the specific details of the transaction is invaluable.

Another option for aircraft buyers is to utilize the services of an aircraft loan broker. Because of the specialization in the aircraft lender market and the growing number of lender participants, there are now an increasing number of aircraft loan brokers who will charge a fixed fee to help source the best lender for a transaction. The fee is not due unless the loan closes.

Buyers seeking to acquire an aircraft can feel quite confident these days that they will find financing: there is likely a lender out there for most qualified buyers. This is true even if the purchase will be acquired via a new buying entity without audited financials, or even if the aircraft is over 20 years old. Shopping the right lenders and staying current with all of the financing options available can significantly reduce the time spent in locating the right lender and obtaining the best rates.

Once you understand which lenders are available to lend based on the specific aircraft being purchased, solicit several proposals. It is always important to include the financial institution with whom you already have a relationship, either from a previous aircraft transaction or from your current bank or both. Leveraging an existing relationship may result in better loan terms if that bank wants to remain your sole financial provider. However, recognize that building on this relationship may result in cross-collateralization of other assets encumbered or held by that bank.

Once you have several proposals, don’t be afraid to ask for better terms. The business terms of the initial proposals are often negotiable.

  Amanda Applegate - Partner, Aerlex Law Group