Pre-Owned vs. New Aircraft: Financing Considerations

When considering an aircraft purchase, you may be contemplating whether it’s better to purchase a new or pre-owned aircraft.  There are many factors to consider, with financing being just one of them.

Understanding Financing Options for Aircraft Purchase

There are many different financing options for aircraft purchases, including term loans, finance leases, capital leases, and operating leases.  Working with a reputable aircraft financing broker can help you understand the wide variety of options available to you.  Whether you buy new or used does effect financing options.

New Aircraft: Financing Considerations

Advantages of Purchasing New Aircraft

Investing in a new aircraft comes with several benefits:

  • Latest Technology: Access to cutting-edge avionics, fuel efficiency, and safety features.
  • Customization: Ability to tailor the aircraft’s interior and specifications to exact preferences.
  • Warranty Coverage: Comprehensive manufacturer warranties that reduce initial maintenance costs.

Financing New Aircraft

Financing options for new aircraft often include:

  • Aircraft Loans: Traditional loans with structured repayment terms are widely available for new aircraft. With factory-new models, some lenders are open to 90% LTV (10% down payment).
  • Leasing: Operating or finance leases that provide flexibility without the commitment of ownership. These are normally only available to businesses.
  • Manufacturer Support: Financing programs offered directly by manufacturers with competitive airplane financing rates.

Challenges in Financing New Aircraft

Considerations include:

  • Depreciation: New aircraft experience significant depreciation in the initial years, much like automobiles.
  • Delivery Times: Potential delays due to manufacturing lead times – delivery times can be as long as 2-3 years, unless you are able to secure a delivery slot that a buyer has dropped out of.
  • Higher Acquisition Costs: New aircraft are of course more expensive than used aircraft, so they will result in higher overall purchase and financing costs.

Pre-Owned Aircraft: Financing Considerations

Advantages of Purchasing Pre-Owned Aircraft

Opting for a pre-owned aircraft offers several benefits:

  • Cost Savings: Lower acquisition costs compared to new models.
  • Immediate Availability: Ability to acquire and deploy the aircraft more quickly.
  • Proven Performance: Established maintenance and operational history.

Financing Pre-Owned Aircraft

Financing structures for pre-owned aircraft may include:

  • Aircraft Loans: Terms loans are widely available for pre-owned aircraft. While some lenders have a 20-year age limit on aircraft they will finance, there are lenders that have virtually no age limit. Working with an aircraft financing broker can match you with the best lender for whatever aircraft you are considering.  Term and amortization can still go out to 20 years with some lenders.
  • Leasing Options: There are also many leasing options. These usually provide 100% financing, but term and amortization is usually much shorter than it is for term loans.  Leases are generally only available to established businesses.
  • Alternative Funding: Options such as fractional ownership or partnerships.

Lenders will assess the aircraft’s age, condition, and marketability, which can influence loan terms and options for aircraft loan financing.

Challenges in Financing Pre-Owned Aircraft

Considerations include:

  • Maintenance Costs: Older aircraft may require more extensive upkeep.
  • Technological Obsolescence: Less advanced avionics and systems compared to new models. Software and avionics upgrades may be costly.
  • Resale Value: Potentially lower residual values impacting financing terms.

Comparative Analysis: New vs. Pre-Owned Aircraft Financing

Cost Considerations

While new aircraft have higher upfront costs, they may offer better financing terms due to their value and collateral strength. LTV may be higher for new aircraft. Pre-owned aircraft offer lower purchase prices, but generally require at least 15% -20% down.

Depreciation and Resale Value

New aircraft depreciate rapidly in the first few years. Pre-owned aircraft have already undergone significant depreciation, potentially providing a more stable resale value.

Maintenance and Operating Costs

New aircraft benefit from warranties and require less immediate maintenance, whereas pre-owned aircraft might incur higher maintenance expenses, influencing total cost of ownership.

Financing Rates and Terms

Airplane financing rates may vary between new and pre-owned aircraft. New aircraft may qualify for more favorable rates and longer terms, while financing for pre-owned planes might be more restrictive.

Key Factors in Decision-Making

Total Cost of Ownership

Assessing the long-term financial implications, including purchase price, financing costs, maintenance, and depreciation, is essential in making a prudent decision.

Operational Needs and Preferences

Consider the specific requirements such as range, capacity, and technological features. New aircraft offer the latest advancements, while pre-owned options may suffice for certain operational needs.

Financing Flexibility

Engaging with experienced aviation finance professionals like The Aircraft Lenders can provide insights into tailored financing solutions that align with strategic objectives.

Frequently Asked Questions

What are the primary financing options for purchasing an aircraft?

Options include traditional aircraft loans and leasing arrangements. The choice depends on financial goals, cash flow considerations, and long-term plans. Aircraft financing brokers such as The Aircraft Lenders can help you navigate your financing options, match you to the best bank for the most competitive approval terms, and work all parties to get your loan closed and your aircraft acquisition completed.