Why asset lending is not common in the piston market – Aviation Finance

Let’s say you have good enough credit risk that with 15% down payment a bank will lend you money to buy a 2010 Cessna Citation Mustang for $ 2.1 million. After owning the plane for three months, a 500-year flood submerges the factory in which you own 50% of the stake, as well as half of the units of a garden apartment complex that you own near the coast. . All your submerged manufacturing machines are declared a total loss, with replacement equipment at 18 months per container ship. You are forced to close the factory. Half of the tenants in the apartment complex move out for good, causing you to lose that income. And the hangar where you kept your plane saw its roof explode, causing cosmetic damage to your jet. You are not able to repay the loan, so the bank must repossess it.

Now the bank faces a $ 1.79 million loan and a damaged Cessna Citation Mustang. In the worst-case scenario, repairing this damage costs $ 149,000. Add an additional $ 30,000 to manage repossession, repackaging, remarketing and resale. At $ 179,000 (or 8.5% of the aircraft’s original value), the lender still has plenty of room to take out full.

In another example, suppose you borrow $ 100,000 to buy an early 1970s Cessna 210 for $ 120,000 with good P&I, up-to-date avionics, and an intermediate engine. Several months later, a tornado ravages the car dealerships and the mall you own, all located in the same neighborhood, destroying your showrooms, 85% of your car fleet, and 90% of the mall structures. Your insurance was never designed to cover so many losses. Plus, your retail tenants are unable to recover from the damage. And then there is the case of a partially destroyed hangar where you kept your Cessna 210… You are forced into bankruptcy, so the lender is forced to repossess.

Now the lender is stuck with a $ 100,000 loan on an airplane in need of fuselage repairs. Ideally, metalworking, painting, repossession documents, reconditioning and remarketing cost an additional $ 30,000. This lender is “underwater” at 10% of their loan and will have to seek funds from the borrower personally in order to recoup their loss. An extreme case, but still a bad bet, from a lender’s perspective, and why a lender typically doesn’t offer asset loans on piston planes.

Very good advice. Excellent rates. Helpful, responsive representatives you can trust. Three good reasons to turn to AOPA Aviation Finance when buying or refinancing an aircraft. If you need a reliable source of funding with people who are by your side, just call 800.62.PLANE (800.627.5263) or click here to request a quote.