Last week I spent a couple of days in Dallas at a NARA conference (National Aircraft Resale Association). I always enjoy these meetings and usually come home with more ideas and information than I know what to do with. This year was no exception.
Although attendance was somewhat light, those who were there were anxious to share information and compare notes on the market. Topics of discussion included the current availability of credit, trends in aircraft sales, the global economy, legislative and regulatory changes, business and general aviation outlook, aging aircraft and maintenance issues. Several panels of experts on each topic were on hand to give thoughts and answer questions posed by the audience. Today I would like to share some thoughts that I took away from the discussion about finance.
The panel of experts on hand to discuss credit availability included representatives from 1st Source, Bank of America, GE Capital, PNC Finance & Aircraft Bluebook. One interesting observation that was made concerned the amount of cash transactions that seem to be occurring in today’s market. The panel said that their biggest competition on any transaction comes from 3 sources: 1) cash 2) local banks & 3) each other. Historically, about 50% of aircraft transactions have been funded with cash. Since 2008, that number has shot up dramatically, currently representing around 75% of in service aircraft.
All representatives talked about the new environment that exists today for aircraft financing. One bank said that they had implemented a hard “20 year rule” when it came to financing aircraft, unless the loan was to a current customer or a long term relationship was formed. The 20 year rule includes both the age of the aircraft and the term of the loan. In effect, if you are looking for a 10 year note, many banks will not finance an aircraft older than 10 years old. No wonder ageing aircraft is such an issue right now.
All banks talked about focusing on relationships rather than transactions. While my company has always been relationship focused, I think a lot of us got wrapped up in the hot market a few years ago and lost some of that focus. That pendulum seems to have swung back now for almost everyone.
The issue of floor plan loans for aircraft dealers was a bit tense as you can imagine. Dealers have been extremely limited in their inventory purchases the last couple of years because of falling prices and the difficulty in obtaining floor plan financing. As a result, we find ourselves in a “One Price Market” where there is virtually no difference between wholesale and retail prices. When asked about floor plan options, the panel of lenders were less than enthusiastic.
A few of the lenders who were traditionally aggressive floor plan lenders still find themselves working out of some difficult situations. As a result, they are now looking at more of a partnership arrangement rather than true floor plan financing. Some who had not previously offered floor plans said they may consider growing into that business, but it would be a slow process. I’m afraid there was no real exciting news on this topic for dealers to bank on (pun intended).
Everyone in the panel agreed that they would continue to scrutinize certain industries who have been suffering the last couple of years, namely: 1) Real estate 2) Hedge fund mangers 3) Auto dealers.
Banking relationships were stressed again and again as their primary focus. I guess the one thing I would suggest to anyone with an interest in financing an aircraft over the next several years is that it is probably time for you to treat your banker to lunch for a change.
More next week.
Toby J. Smith
JBA Aviation, Inc.