Financing an Aircraft Purchase
If you are financing your aircraft purchase, follow these tips to have a better financing experience.
It takes time to provide all of the due diligence and KYC information required by a lender. It also takes time for the lender to review the information and perform their due diligence. Contact potential lenders for an introductory discussion prior to signing a letter of intent so you are aware of their general terms. If no lender will finance the 25-year-old aircraft, you want to buy, you want to know this before you sign the letter of intent.
How Much Information Will You Provide
Is the aircraft the only collateral or are you providing a personal guaranty? You also need to consider how much of the purchase price you want to finance.
Who is the Borrower
You should know if your special purpose entity, an owner trust or your business will own the aircraft before you complete the lender’s initial information request. This requires that you identify how the aircraft will be used and requires that your tax planning be completed so that the lender can be told the borrower and the aircraft ownership and operating structure before the lender’s counsel begins drafting documents. A change in structure after the loan documents are drafted will increase costs. To minimize costs, start early to work with advisers to determine how you will own and operate the aircraft.
Know these Loan Terms
When discussing terms with your lender, make sure you understand the lender’s position on these terms:
- Is leasing the aircraft to unrelated parties allowed without lender’s consent?
- Is chartering the aircraft allowed without lender’s consent?
- What are the prepayment penalties if you pay off the loan in the first 5 years?
- Will you receive notice and an opportunity to cure if there is a default?
Please contact us to assist you in reviewing loan documents when you finance your aircraft.
Michelle Wade is a Partner with the aviation law firm of Jetstream Aviation Law, P.A. and counsel clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the US Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com.