Aircraft financing

The aviation finance companies normally lend over 5 years in Europe. Its 30% down and 6-7% pa. Can defer up to 50% of the financed amount till the end of term. Min loan amount will be 60K stg for an individual.

William

I can’t lend you any money but you also asked for any insight… Is the 6-7% the interest rate? That is outrageously high. It would be much better to extend one’s mortgage (home loan; about 3% here currently, with European central bank rates near zero) and use that money to buy the plane.

In any case I am sure the aircraft loan will not be secured only on the aircraft; only a dumb lender would take a depreciating (and liable to be damaged) asset as security. The loan will likely be a personally secured loan. Well, unless the interest rate is very high

Best thing of all is to buy only what one can afford in cash, because you are going to be really p*ssed off if something happens to it, the insurance doesn’t pay, it is grounded or even beyond economic repair, but you still have to pay off the loan. There are lots of things in that category e.g. engine failure, other engine damage, big stuff not found on the prebuy, syndicated planes where the members fell out with each other – every hangar has some abandoned plane(s) like that. But I am sure others have already said that

You borrow of 20 years for something that is an investment, or revenue generating asset.

An aircraft is a depreciating assets, so certainly not an investment. If it’s going to be generating an income (because for example it’s essential for your business and allows you to expand by tapping into new markets) then sure. But otherwise I’d not consider it over that long.

I’d be amazed if a bank would consider it over that period.

You absolutely need to be prepared for unexpected bills too.

Edit:

Sorry re-reading that it sounds harsh is a way that I hadn’t intended. No criticism intended….I just wouldn’t like to see you make a mistake and find you paying for it for 20 years! Be careful in what you choose to borrow for.

Say one of the owners has a prop-strike?

@NorFlyer – I posted my view e.g. here

I had an encounter with that when my plane was 1hr old

That is UK law; Norway might be different. Countries differ e.g. a German poster has claimed here previously that the issue would have to be directly related to the accident for a German insurer to not pay out, but it can’t be that simple because you could be a great 10,000hr pilot who never had a PPL… etc.

In practical terms, you can make sure the plane itself is “paper legal”, by getting a release to service from the maintenance company, and this is regardless of its actual condition! And if the plane is really bad and the insurer doesn’t pay out, you would claim from the company’s insurance. But it is difficult to make sure all members of e.g. your syndicate are legal and continue to be so. Even if you insist on seeing their docs, one of them might become medically unfit during his/her medical term, which is trivial under EASA where basically all of Part-MED is a self grounding condition, but is slightly clearer under FAA where they publish self-grounding conditions. You cannot possibly be assured of this. There are (in the UK) reports of insurers paying out despite void medicals but for obvious reasons they are never more than hearsay.

I used to rent my plane out 2002-2006 and two of the renters lied about their papers. One of them I believe had a forged ATPL (he left aviation years ago). And I only ever had a few renters… that in turn was another problem, with the tax people Fortunately none of the flights they actually did were outside their license privileges, but…

A prop strike is just negligence, which is covered. I recall Germany has multiple levels of “negligence” however…

So, if you have a “live and let live” approach to life then disregard all this You would not believe what I get to hear off-forum.

I’d be amazed if a bank would consider it over that period.

They will lend money to anybody if they have a good personal guarantee

At risk of diverting this discussion off-piste, it’s worth looking from the insurers’ POV.

Tesco is in business to sell groceries to happy customers. If a customer is not happy with his toothpaste, they give back the purchase price, even if the only problem was that the punter was too dumb to squeeze the goo onto a brush.

It seems to me that insurers are in business to restore an airman who has a genuine prang to his previous financial position, or to pay agreed value for a total loss. Like Tesco, they want happy customers to attract more customers. So, in general, they will pay unless they smell fraud because to do otherwise is to negate all of the $quillions that they spend on advertising.

So, in general, they will pay unless they smell fraud

Yes, unless the claim is big; say 100k+. Then they will look at it more carefully. Or, to use (C)2016 MBA-speak, they will use the claim size to calibrate their attitude

A friend of mine ended up in the sea, and the plane (a twin, and yes, there was sufficient fuel on board – there was still fuel in it 3 months after when they dragged it up!) sank near Centrica’s interconnects between their rigs in the area. Centrica insisted on sending divers down and having the wreck removed in case it drifted into their interconnects, and promptly sent a very large bill (I think >£30,000 just for the diver to take a look). My friend’s insurance company did send someone around and asked an awful lot of questions, and it was clear they were looking for reasons why they shouldn’t pay. (They did pay up).

But then again, a twin ditching, plus some serious expenses imposed by Centrica (it was probably six figures by the time they’d pulled the wreck off the sea bed) probably gave the insurance motivation to do quite a lot of investigation – from their point of view it would be a very unusual claim, and I can understand them wanting to do some due diligence before paying out.