Take flight with aircraft financing

Several options are available for flying privately — from chartering a plane when you need one to owning one outright. Each option offers distinct advantages and important considerations. If you decide that purchasing a plane of your own is a priority, financing can help to facilitate this goal. But, it’s important to understand key considerations for navigating the financing process successfully.

Is ownership the right option?Flying privately is an appealing alternative to traveling with major commercial carriers. How you choose to do so hinges on your travel needs and how much of a financial commitment you’d like to make. Your travel patterns are a key consideration in evaluating your options. How frequently you fly, and variations in the distance, duration, destinations and number of travelers, as well as comfort, security and privacy concerns, are all factors in the decision.

The range of choices for going private includes:

• Charter travel

• Jet card

• Fractional ownership

• Joint ownership

• Full ownership

Each option offers distinct advantages and one may be better suited than another. For example, charter travel could make more sense if you fly less frequently and aren’t looking for a long-term investment. Chartering may provide substantial flexibility because a client can establish relationships with multiple providers to accommodate geographic, capacity and distance requirements.

A jet card may be something to consider if you regularly make short or one-way trips, or you need to be able to book private air travel on short notice. A jet card provides access to private aircraft for a set number of hours at a flat-fee. Essentially, you’re pre-paying for flights but you have the flexibility of choosing the aircraft size and range that fits your needs.

If you’re comfortable with a longer-term commitment, ownership may be in your sights. The question is, will you choose fractional, joint or full ownership? With fractional ownership, you purchase shares of an aircraft over a contract term, and pay hourly charges for flight time and monthly fees to cover overhead (such as maintenance, insurance and management). A joint ownership arrangement allows you to share in the ownership of the aircraft with another individual and split the operating costs.

Full ownership may be the go-to choice for maximum control. Your plane is available when you need it and will be configured to your style and travel needs. While you could draw on cash reserves or sell an investment to fund the purchase, financing allows you to keep your investment assets intact.

Qualifying for an aircraft loanFinancing an aircraft has similarities with financing other complex, long lived assets. The process begins with assessing your financial profile, including your current and forecasted cash flow, liquidity and net worth in relation to the size of the credit facility.

The lender will also consider whether you have an in-house aircraft management team in place, or if management will be outsourced

Aspiring to own a private aircraft is a common ambition for many of the world’s ultra-affluent. Globally, approximately 15 percent of ultra-high net worth individuals use private aviation for the majority of personal and business flights, according to Knight Frank’s 2017 Wealth Report Attitudes Survey.

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to a professional management company. You’ll be asked where the aircraft will be hangared, how the aircraft will be serviced and maintained, and how you plan to use it. The bank will estimate the aircraft’s annual maintenance and operating expenses, and engage an appraiser to evaluate the condition of the aircraft, confirm the current value and develop a projection of future values based on the specific aircraft and forecasted operations.

All of this information is used to create a customized financing arrangement. Aircraft loans are typically structured with a borrower that is a special purpose entity, such as a limited liability company. Loan terms tend to range between three and 10 years. Depending on the model, age and usage of the aircraft, the bank may advance 70 to 100 percent of its initial value. Interest rates may be fixed or variable. Many clients choose to swap a floating interest rate to fixed using a derivative product.

Finding the right lenderBefore you move forward with an aircraft loan, there’s an important first step — choosing the right lender. Aircraft financing is available from a number of banks and other lenders, and it is vital to select a lender experienced in this specialized arena. You may want to seek out a lender who can serve in a consultative role as you work through the purchase, offering guidance on the complex issues related to aircraft ownership, such as:

• Advice on aircraft selection

• Evaluating an existing aircraft financing arrangement to determine if refinancing and/or restructuring is warranted

• Insight on aircraft costs, including operating expenses, maintenance and insurance

• Connecting you with experienced professional service firms, including attorneys, advisors and brokers to facilitate the purchase, provide appropriate legal, tax structuring and insurance advice, and evaluate depreciation benefits, exposure to sales and use tax, deductibility for business use, FAA regulations and other applicable provisions

Finally, an experienced lender may be able to customize a loan for your unique situation, structuring around such considerations as uneven cash flows, multiple guarantors and leasing arrangements.

Bear in mind that aircraft ordered new from the manufacturer are subject to lead times of up to several years, and the manufacturer will require up-front and continuing pre-delivery payments. For popular, high demand aircraft, lenders may provide financing for pre-delivery payments for clients. Your lender can walk you through the best financing arrangement to meet these payments.

Don’t go it aloneFinancing an aircraft purchase is a complex endeavor and it is important to have professional guidance along the way. CTC | myCFO and BMO Corporate Aircraft Finance specialists regularly assist clients regularly with these types of issues. For help with navigating the aircraft financing process, contact an advisor today.

Before you move forward with an aircraft loan, there’s an important first step — choosing the right lender.

BMO Wealth Management is a brand name that refers to BMO Harris Bank N.A. and certain of its affiliates that provide certain investment, investment advisory, trust, banking, securities, insurance and brokerage products and services. BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. Member FDIC. Not all products and services are available in every state and/or location. Investment Products are: NOT FDIC INSURED – NOT BANK GUARANTEED – NOT A DEPOSIT – MAY LOSE VALUE. C11# 6336930 ©BMO Financial Group (11/17)

Leslie Grant is a Director of Capital Advisory Services with CTC | myCFO. Prior to joining BMO, she spent 15 years focused on aviation finance at GE Capital and other financial institutions.

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