How does a business aircraft owner secure the very best aircraft financing?

The good news for business aviation today is that current pricing and structures for aircraft financings in the U.S. are at historically unsurpassed competitive levels. You are very likely to get a good deal by relying on market forces. However, every aircraft owner with whom I have conducted business wants to get the very best deal, not just a good deal. So, how does one manage the aircraft financing process to get "best in class" results and, just as importantly, which elements comprise an excellent finance solution and experience?

The domestic corporate aircraft financing landscape has changed dramatically in the last five years and this change significantly benefits aircraft owners interested in financing. Large U.S. banks have become significantly more active and experienced in providing business corporate aircraft financing to both high net worth individuals and corporations. This development has drastically increased competition, driven down interest rate spreads, and contributed to more aggressive structures.

This increased competition is most readily measured by the compression in interest rate spread that has occurred in the last two years. Owners can find very low lease and loan rates in today's market from both banks and non-bank financial institutions, but while this is a critical component of a competitive transaction, it should also be considered only as part of the overall offering. Below is a more comprehensive list of factors to consider for both leases and loans.

* Lowest interest rate or lease rate factor

* Highest loan amount as a percentage of purchase price

* Longest term

* Longest amortization (highest balloon payment)

* Fewest financial covenants

* Fewest pre-payment penalties

* Most early termination options

* Most early purchase options

* Most creative client driven financing options

With the above considerations in mind, the aircraft owner should prioritize each factor's relevance to secure the maximum aircraft financing bang for the buck as possible from the marketplace. While negotiating tactics vary from financier to financier, here are some 30,000 foot suggestions.

1. Financial Transparency 

Having a complete financial package to present to the financiers on your short list as early as possible is absolutely invaluable in securing attractive rates and structures. Aircraft financiers internally rate transactions from a risk perspective based on a combination of in-house credit and asset scoring factors. The better the credit person at your financial institution understands your financial situation, the more they can justify aggressive terms and conditions. If they have the back of a napkin, they will generally have to be more conservative.

2. Get pre-approved

If you are seriously looking to acquire an aircraft, the odds are you are not acquiring it immediately ... why not get pre-approved with an aircraft financier? This is a serious feather in your cap when you are looking to acquire an aircraft because it will empower you to move quickly when you find that great deal. I have seen clients create very significant savings on their aircraft acquisition because they were financially positioned to act decisively. Getting pre-approved also mitigates last minute surprises. When it comes to aircraft financing, "time really is money".

3. Obtain your loan proposals early in the process

If you choose not to get pro-approved, your next best course of action is to secure your loan proposals from the lenders as soon as possible once you have identified the actual aircraft you intend to purchase. Have a full financial package (the more comprehensive, the better) ready and waiting to send to those financiers on your short list which you can send along with the aircraft specifications. Be ready to let them know how many hours you intend to operate the aircraft annually, whether you intend to enroll the aircraft and/or engines in a maintenance program, any upgrade which will be performed, charter activity, etc. The longer they have to digest your information, the more aggressive they can be in their proposals.

4. Retain industry experts and ask them for referrals to appropriate financiers.

Aviation attorneys, tax advisors, aircraft management companies, and aircraft brokers and dealers save their clients more money than they will ever know. Especially important from the financing perspective is retaining a tax advisor and an attorney (sometimes one and the same) who really understand aircraft finance. They can advise you as to whether to utilize an aircraft under a lease or loan structure, and further negotiate the best terms for you. These industry experts will also typically have a good understanding of which financiers would be most appropriate and competitive for your aircraft financing requirements.

5. Shop around

It is important to have several aircraft financiers vying to win your business to create some good old-fashioned competitive spirit. How many is the right number? If you have the right mix, three or four should do the trick, but your industry experts would be the best people to give you guidance in this regard.

I realize that many of the suggestions above may at first glance appear obvious, but a surprising number of prospective owners leave financing to the last minute and do not provide financiers enough time to put their best foot forward. Consider the following: If you saved 10 basis points off of a $40 million dollar aircraft financing and were to hold the aircraft for the typical five year period, the net present value of your savings would exceed $150,000. So, please, consider taking advantage of the steps discussed above because these types of savings are readily available, and time really is money.

John Germaske is Director of Wachovia Equipment Finance, which provides both aircraft and yacht leasing and financing. For more information, contact him at 310-947-1557.