"Aviation Financing: It's Not The Same As Other Lending"

Article By Roger M. Morgenthal
he recent economic changes have demonstrated the need to do business efficiently. Many businesses have discovered that owning and operating an airplane can save time and provide almost unlimited flexibility for travel that is not attained by using the airlines. Whether it is a single-engine Cessna owned by a physician who travels between hospitals or a large corporate jet that crosses borders and oceans at higher speeds and altitudes than commercial airliners, an airplane is a superb business tool.

Banks are getting more requests from customers for loans to purchase aircraft, and their customers are demanding a wider range of options for aviation financing that similar to those available for buying other equipment. However, the lender must understand and compensate for certain additional risks, and the borrower must be prepared to have more conditions attached to the loan.

At the lower end of airplane lending, for single or twin-engine propeller planes, loans are often granted based on the credit-worthiness of the individual borrower rather than the value of the airplane. This makes the process less complicated, although there are precautions the lender must take to ensure that the airplane continues to be valuable collateral.

With more expensive aircraft such as jets, most of the loans granted are still primarily credit-based, with the ability of the borrower to pay back the loan being the key factor. However, there are collateral-based lending options in which the asset value of the aircraft being financed is the primary consideration in approving the loan. The age of the airplane is important and usually there are strict maintenance and operational requirements that are monitored by the lender. The lending documents are highly specialized, and lenders working in this area are usually aviation experts.

Smigel, Anderson & Sacks, LLP, is unique among Central Pennsylvania firms in that it has an Aviation Section prepared to work with lenders and borrowers in financing transactions. The attorneys in the section are licensed pilots and aircraft owners who understand aviation. We also represent clients in administrative proceedings with the FAA, assist with medical certification issues, guide the formation of aircraft co-ownership arrangements and provide counsel with other aviation-related matters.