Chris Miller and Megha Bhatia sat down with the National Aircraft Finance Association (NAFA) to discuss traditional lending and alternative financing options.
“With traditional lending, the loan application process is a critical step for a financial institution to assess the credit worthiness of a client and requires credit checks and audited financials. This enables favorable rates but can take time, as the loan is executed against the credit profile of an individual or organization. Additionally, most banks are less likely to participate in loans for aircraft over ~15 years.
The surge in new entrants to our industry over the last few years filled up demand for OEM deliveries and consequently pre-owned aircraft, leading to record low inventory levels and an increased interest in older planes. While we are seeing these trends normalizing, and OEMs increasing production rates to match demand – options to the traditional lending process have developed as a response to the need for speed and ease throughout the financing process, especially for mid-to-older vintage jets.
Specialty asset-based lenders are able to underwrite an aircraft as a whole, providing more flexible financing structures. Since a credit application isn’t required, this is especially helpful for applicants who may not meet the investment profile of traditional lending. The loan is structured differently, against the asset value instead of the credit profile of the owner; this forms a synergistic partnership between the Lessor and Lessee to maintain or even enhance the residual value of the aircraft.”
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Aviation Capital. Customized asset-based finance solutions for business aviation.