Will long-term engines complicate the lending process – Aviation Finance

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You’ve finally found the perfect plane. It has no damage history, all of its logs, excellent avionics and a good interior. The only downside is the high time engines. You are not worried because the plane flies often and is mechanically in very good condition. When you present it to your lender, however, the lender balks. Why?

Lenders tend to keep the worst-case scenario in mind. For them, this is the case if they have to repossess the aircraft and it needs an overhaul. To make it marketable again, the lender would have to use their own money for a makeover. To counter this, most lenders will point out that you have enough cash on hand to cover a review from day one.

Some lenders may require a review as part of the purchase. Others may require a sum of money “withheld” before funding. This “hold” amount must be sufficient to cover the costs of overhaul when the delivery is taken. Since lenders recognize that there is a high likelihood of other expenses occurring at any time with an airplane, they may also need an additional liquidity cushion to close the deal. Some lenders will simply opt out of the transaction.

For many pilots, having to build a review into the purchase price looks like a price rebate opportunity. The reality is that aviation market valuers have already figured this out in the equation. For example, if two identical planes are for sale and one has a new overhaul while the other is at TBO, the aircraft with new engines will have a market value of at least $ 30,000 more per engine. than the TBO plane.

We have had clients who felt that their ability to potentially liquidate an asset to cover a review should have counted in their favor. Lenders tend to disagree with this assessment for two reasons. First, offering to liquidate an asset for overhaul changes the borrower’s overall financial position. Bearing in mind that every aspect of one’s financial situation is interconnected; it becomes easy to see why changing one room can have a negative domino effect on the whole.

Second, where borrowers tend to feel eternally confident about their ability to quickly liquidate any assets they own, lenders are more optimistic about the reality of asset divestiture. There are many historical precedents that financiers can learn from when circumstances worsened, and the asset that a borrower thought was easy to sell to cover the unforeseen event turned out to be much cheaper than expected or failed to turn out. sold at all.

On the flip side are two specific cases where an aircraft owner with TBO engines could easily get an overhaul loan. In the case of a free and clean plane, it is usually possible to obtain almost 100% financing. The second situation is where a loan is still outstanding. If the amount requested – plus the remaining principal – is less than 80% of the loan-to-value ratio (LTV), a lender will usually refinance. In this case, the owner may not have to shell out more than 20% out of pocket to pay for the overhaul.

Lenders who offer this type of refinancing find it attractive for another reason. Often times a pilot will include an avionics or interior upgrade, turning a simple engine overhaul into a complete aircraft overhaul. The only downside is, at least on the piston side, that the relatively small amount of a refinance loan for an overhaul is small, so it is not necessarily attractive to many lenders.

Excellent rates. Excellent terms. Helpful and responsive representatives. Three good reasons to turn to AOPA Aviation Finance when buying an aircraft. If you need a reliable source of funding with people who are by your side, just call 800.62.PLANE (75263) or click here to request a quote.


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