Before you buy

What is the total cost?

Aircraft ownership costs typically fall into one of two categories: fixed costs and variable costs. Fixed costs include things such as the purchase price (down payment plus monthly payment for the length of ownership), insurance, and hangar/storage costs. Variable costs include maintenance reserves, engine reserves, repairs, inspections, fuel, oil, and any other cost directly driven by the operation of the aircraft. In many cases, lenders will require engine and maintenance programs to be in place for the aircraft, which can help streamline some of these variable costs into a simple hourly cost for operation.

What are my financing options?

For traditional financing, also known as a fully underwritten loan, the lender will want to look at a complete set of financials for the buyer. The buyer must be able to personally guarantee that the loan will be satisfied. That means the lender will want to assess personal credit, income, liquidity, as well as business interests and any other financial information that will help you meet their qualifications. If you’re buying as a partnership, many lenders will require each partner to qualify individually for the full loan amount.

If you are purchasing the aircraft specifically for business, or registering the aircraft to a business, that business needs to provide a guarantee on the loan, so lenders will be underwriting the business as well as the individual for the loan.

Another option would be an asset-based loan. Asset-based loans focus more on the current and residual value of the aircraft being purchased and not so much on the financials of the acquiring individual/partnership or business entity.

Because there is less financial underwriting with asset-based loans, lenders that offer this type of financing often have limitations on the types of aircraft they will finance and the ownership structures they will allow. If you meet the lender’s criteria, the limited financial disclosure required often means faster processing for the loan, which will save you time and effort.

Loan term, down payment, and rate?

In most cases, lenders financing jets offer a 15-year amortization, with a five-year term. You’ll have a balloon payment in five years. This structure fits well with the depreciation schedule used by businesses. If you’ll keep the aircraft for more than five years, some lenders can offer longer terms based on your qualifications and the details of the transaction. Down payments for traditional financing are between 15 percent and 20 percent. If you are looking for an asset-based loan, down payments between 30 percent and 40 percent are common. Interest rates vary and are often based on aircraft and usage specifics.

Resale value or depreciation rate?

Resale value is difficult to predict accurately; however, looking at historical numbers can help identify trends. Depreciation curves vary across different types of aircraft, and some aircraft consistently perform well in the secondary market.

Do not overbuy up front, and do not over-finance the aircraft. If you understand both the aircraft’s value to you and its value to the market, you are more likely to get a good price up front. Making more than the minimum down payment or avoiding long amortization will help keep your equity in the aircraft within a standard range of the market. If you follow both points, you are likely to have room for negotiation when you sell.

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