The age of an aircraft remains a significant consideration when seeking financing options. Aircraft loans, leasing, and financing are the paths most treaded by individuals and companies planning an airplane purchase. However, many prospective borrowers hit a wall when they discover that the age of the aircraft fundamentally influences financing options. Leading Aviation finance entities, like ‘The Aircraft Lenders’, efficiently help navigate these often-complicated financing waters while shedding light on age considerations. Let’s deep-dive into the correlation between an aircraft’s age and financing.
Age and Aircraft Financing
Aircraft financing companies definitely consider the age of the airplane when deciding whether to offer an aircraft loan on a particular aircraft. While some draw a line in the sand at 20 years old, there are quite a few lenders that don’t mind older aircraft. Here are some guidelines:
- Piston aircraft: The Aircraft Lenders can facilitate financing for piston aircraft as old as 1950, and in some cases even older. 15-20 year terms are available, with as little as 15% down.
- Turboprops: Terms up to 20 years are available for both single and twin turboprops newer than 1970.
- Jets: For jets older than 20 years old, there are several good financing options. Most lenders require that jets be on an engine maintenance program, although lenders may consider financing an aircraft with no engine program if usage is light and the borrower is very strong financially.
- Helicopters: There are not many lending options for helicopters older than 20 years old. Those that are available are usually business loans.
Why Age Matters
For turbine aircraft and helicopters, the age of the aircraft directly affects its financing options. This principle is driven by the fact that older aircraft often require more maintenance, which can impact the cost of ownership and thus, the ability to repay a loan. There may be more difficulty in obtaining parts for older aircraft, and avionics may be outdated. Despite those considerations, there are still good options for financing older jets and turboprops.
Criteria Used by Aircraft Financing Companies
Beyond considering the age of an aircraft, financing companies and lenders also evaluate other factors before providing an aircraft loan.
Loan to Value Ratio (LTV)
The LTV ratio remains a crucial factor for lenders. In simple terms, it signifies the ratio of a loan to the value of the airplane. An acceptable LTV often ensures that the airplane’s resale value would meet the remaining loan balance, if necessary, when the term of the loan ends.
Borrower’s Credit Profile
Lenders inevitably explore the borrower’s credit profile. A robust and clean credit history indicates financial responsibility and increases the chances of a successful loan application.
Debt-to-Income Ratios
For personal loans and personal guarantors for business loans, lenders look at the ratio of your monthly or annual debt payments to your income. They want to see your debt-to-income ratio no higher than 40% – 45%, after adding in the new aircraft payment.
Cash Flow
Cash flow is the net amount of cash that an entity receives and disburses during a period of time. Investors and lenders want to see positive cash flows even after payments have been made for capital expenditures (known as free cash flow).
Liquidity
Lenders want to see that borrowers have funds for the down payment for the aircraft held liquid in bank accounts or investment accounts. They also want to see a good liquid cushion for annual operating and maintenance costs.
Aircraft Usage
Borrowers must also express how they intend to use the aircraft since usage affects loan terms. Aircraft financed for charter generally have 5-year terms with longer amortizations.
Financing Options for Old Aircraft
There are many good options for financing an older airplane, and The Aircraft Lenders can help.
Frequently Asked Questions
Is it possible to obtain financing for older aircraft?
Yes, it is possible, but the process can be more challenging. The Aircraft Lenders has some great options for financing older aircraft.
How does the age of an airplane impact aircraft financing rates?
For turbine aircraft older than 20 years, rates may be somewhat higher than they are for newer aircraft. For piston aircraft, older aircraft can get almost the same rates as new aircraft.
What are the options for aircraft loan financing?
Options include traditional loans from financial institutions, aircraft leasing, and private financing. Navigating aircraft financing options is best done with the help of experts such as The Aircraft Lenders. Factors such as the age of the aircraft, the borrower’s financial profile, the airplane’s usage, and the robustness of the market for the aircraft all play integral roles in determining financing viability. With the right approach, it is possible to secure competitive financing for older aircraft.
