Finance: Your airplane acquisition checklist

How well you plan, manage your crew, and follow your checklists help determine how well the purchase process goes. We’re not talking about preflight, flight, and postflight checklists, though. We mean prepurchase, purchase, and aircraft delivery checklists. Let’s start with the prepurchase:

• Ownership. Will you own the airplane yourself or through your company? Will you create an LLC, a partnership, or some other type of corporate body? Iron out those details first. They guide which lender can preapprove you and may also influence the length of the preapproval process. All ownership scenarios have advantages and disadvantages. What’s important to know is that if you decide to change the structure at the last minute, it’s a bit like telling your building contractor you want to move a door. At a minimum there are going to be delays in the process, and it may completely change the structure.
• We’ve seen too many situations where potential buyers got a loan preapproval based on one ownership scenario (such as a partnership), only to change the scenario (such as dissolving the partnership). That kind of change will negate the preapproval process and will force the buyer to start over. It may also necessitate finding a different lender.
• Personal or commercial use? Part 91 transport for you alone, for your company’s employees, or leaseback to the local flight school? Decide how you intend to fly your aircraft and commit to it. There is no advantage in telling your prospective lender and insurer it’s for personal use, only to conduct commercial operations once purchased. Should the discrepancy come to light because of an accident, incident, or investigation, it could trigger a steep default interest rate, or worse. Transparent communication is the best way to keep this complex transaction simple.
• Loan preapproval. Getting preapproved confirms what you can afford and enables you to move quickly on an aircraft, both essential in this seller’s market.

Some think it’s a waste of time to get preapproved because the preapproval is time-limited. True, preapproval is good for anywhere from 60 to 90 days, depending on the lender. That’s generally enough time to find the right aircraft. But, if the search period does exceed the preapproval timeframe, it may be possible to extend the preapproval period.

Even if the lender won’t extend, reapproval is quicker than an initial preapproval. So you’re still ahead of the competition.

While waiting on preapproval, finish the rest of the checklist:

• Escrow. Have cash ready to put in an escrow account. Escrow gives you an exclusive option on an aircraft within a specific timeframe. When entering escrow, ask for generous restrictions. The more time you can negotiate, the better. It gives your lender, insurer, or AOPA Finance space to conduct background checks, damage history, and title searches. Also consider keeping extra money in reserve to add to escrow should the seller require an additional incentive.

AOPA Finance can match you with the right lender, and our extensive experience can also provide you the additional leverage you may need in a tight market, at no cost to you.

Web: www.aopafinance.com
800-62-PLANE (75263).