Navigating the world of charter airplane financing can be challenging, as different aircraft financing lenders have different approaches to financing charter aircraft. The age of the aircraft, the number of projected charter hours, and the type of charter (full charter or supplemental charter), will all affect the possible financing options.
If you are a charter operator rather than a private owner that wants to charter, you are usually looking at a different group of lenders than you would be if you were a private owner putting your aircraft under management with a charter operator.
How To Finance An Aircraft?
The best way to get started with aircraft financing is to consult with an aircraft financing broker such as The Aircraft Lenders who can discuss the various financing options for the aircraft you have in mind and its mission. There are many factors that determine your options, such as:
- the age of the aircraft
- whether the engines are on an engine-maintenance program
- the purchase price
- the number of hours you plan to fly annually
- the break-down of hours between charter and personal/corporate use
- whether you are interested in a personal or a commercial loan
- whether you are a charter operator or a private owner, leasing your aircraft to a management company for charter use
These factors often determine whether a traditional term loan is an option, or whether leasing could be a more viable alternative.
Loans that are tailored for charter can offer a pathway for you to put your aircraft to work, creating cash flow to help offset the cost of ownership. Whether you are looking to finance the purchase of a personal jet that you intend to put on a Part 135 Certificate or you are a charter operator looking to expand or finance your fleet, it’s best to become familiar with the available options for aircraft loan financing. A reputable aircraft financing broker such as The Aircraft Lenders can help you do so.
Airplane Financing Options
There are numerous airplane financing options to explore. Aircraft financing products are always secured by the aircraft itself. The lender will place a lien on the aircraft, and will file it with the FAA. Personal guarantees are almost always required, except for in the case of publicly traded companies. It’s also important to know that aircraft lenders don’t normally take projected charter revenues into account when decisioning a loan. They base their credit decisions on historical cash flow, as show on tax returns. With corporate loans, all owners that own 25% or more of the company will typically be required to submit personal financials and personally guarantee. There are very few asset-based lending possibilities, but that can be an option for certain makes and models of aircraft that are no older than 15 years old that sell for $1.5 million plus. It’s crucial to understand what options are available to you based on your chosen aircraft, your mission, and your financial profile. The Aircraft Lenders can help you understand the options for your specific needs and financial status to choose what works best for you.
Airplane Financing Rates and Terms
Airplane financing rates and terms vary significantly based on the nature of the loan, your creditworthiness, the loan term and amortization, the aircraft mission and the type of aircraft. Aircraft term loans can offer amortizations out to 20 years, and they typically offer the lowest rates and payments. When charter is involved, most lenders shorten the term offered to 5 years, although longer amortizations are still available. That’s because charter aircraft generally have higher utilization, so lenders like a 5-year term (with a longer amortization, to keep payments lower). This is so they can reassess the residual value of the aircraft sooner than later.
It’s important to understand that the age of the aircraft can be a large factor in rate and available financing options, particularly for jet aircraft. Leasing lenders are generally less concerned about aircraft age, but leases are generally only for commercial borrowers. They offer 100% financing, but usually only have a term and amortization of 5 years, so payments are higher. Aircraft financing leases are typically only for commercial borrowers. They offer the advantage of offering 100% financing. Leases generally have much higher payments.
Airplane Finance Industry
The airplane finance industry consists of many stakeholders, including aircraft financing banks, leasing companies, private lenders, and other financial institutions. By understanding the landscape and operations of these entities, you can make informed decisions about aircraft leasing, purchase, and funding. Due diligence is integral in this process, and a reputable broker such as The Aircraft Lenders can walk you through the various options available to you for the aircraft, the mission, and your financial profile.
Aircraft Financing Companies — Term Loans
- Banks: Not all banks offer aircraft financing. It’s best to finance with a bank that has an aircraft financing division. . It’s also worth noting that not all banks finance for charter missions. The Aircraft lenders work with many banks that offer favorable financing alternatives for charter missions.
- Manufacturer’s Financing: When you are buying a new or recent-model aircraft for sale by the manufacturer, they may have a financing division. It’s worth considering what they can offer. Online/Alternative Lenders: These types of lenders provide convenient, often speedy loan decisions, usually at higher interest rates.
Aircraft Leasing
With leases, the lessor generally retains title. Leases can reduce upfront costs, as they generally involve 100% financing, but payments are usually higher as term and amortization are often capped at 5 years. Some leasing lenders have products that allow you to retain title, which is important if you want to take advantage of depreciation for tax mitigation purposes. Operating leases are another option. They are basically a contract to “rent” the aircraft for a monthly fee for a fixed period of time. Under these arrangements, the lessor/lender is responsible for maintenance costs.
Aircraft Funding
There are many aspects to closing an aircraft loan or lease once you are approved, so it’s best to work with aviation professionals such as The Aircraft Lenders to help guide you through the closing process. Funding your aircraft loan often requires:
- a successful pre-buy inspection, with all airworthiness issues addressed prior to closing
- clean title
- an appraisal to support the aircraft’s value
- filing ownership documents with the FAA
Part 135 or Part 91 Financing
In conclusion, financing a charter airplane is different from financing an aircraft for purely private use. Navigating the parameters and options is a vital part of your due diligence. Trusted financing brokers such as The Aircraft Lenders can be an invaluable part of understanding your best financing options and getting your acquisition closed in a timely manner
