Financing for N registered aircraft

I have no practical experience with this, but: couldn’t you set up a US company that buys the a/c? In this scenario, the company owns the airplane and – being a US entity – this should satisfy the aircraft finance company. Might be too complex a route for a – relatively – cheap plane, though.

My own research ended with the result that it seems impossible to arrange. The aircraft has to be held in a trust, which basically means given to the trust. Therefore it cannot be the collateral securing a loan and, for the same reason, neither can a leasing company hold the asset.

Why not? If the trust enters into a suitable agreement with a loan company and the beneficial owner where’s the problem? It’s only paperwork.

Alternatively, if a US leasing company owns the aircraft that satisfies the US ownership requirement. I seem to think some airlines lease from US companies, although the biggest leasing operations are from more friendly tax jurisdictions, like Ireland.

I speak from no real world experience, we have always bought our aircraft without finance.

From Close Brothers web site http://www.closeaviationandmarine.co.uk/aircraft-we-finance/index.html

Aircraft are registered with the authority in the country of registration and we finance aircraft registered in the UK, USA, Ireland, Isle of Man, Germany, Cayman Islands, France and Poland.

N-reg are financed in Europe all the time. The trust makes no difference. The borrower is usually the beneficial owner and the interest is recorded on the FAA register.

I would talk to the Bernhauser Bank, they do it.

I would check very carefully any US corporation ownership option. I know virtually nothing about this (I am under a trust, Southern Aircraft, like so many) but one of the corporate ownership structures requires the majority of the airborne time to be done in US airspace.

Most “upmarket” planes are owned by individual US based trusts where 75% of the shares are owned by US lawyers, which has the advantage that when one of them drops dead they just pop another one in his place, and the 75% min US ownership continues. Whereas with a “bulk” trust like most people use, if the trustee dies, your CofR is invalid, your insurance is invalid, and you can’t fly. All you can hope for is that the trust is inherited quickly by another US citizen (which actually happened to me a few years ago) or that the managers of the trust co-operate promptly on a transfer to another trustee. There is a device called a “pre-signed Bill of Sale” which gets around this but the FAA says it is illegal (unsuprisingly, as any such trust is obviously void).

Re the other Q – I would buy for cash. If you borrow the money, you are going to feel really really sick when the market value of your plane falls below the amount you borrowed, and that will take, approximately, 5 minutes after you buy it

The MV may not fall straight away but it usually does. When I got my TB20GT, it was 195k + VAT. In retrospect this was good value although somebody who bought at the same time as me knocked them down to 170k on the same plane But the Socata list price went up to 220k and then 240k pretty fast and after 2 years I was offered 195k by somebody! But then they stopped making the TBs and the price started to go down and, along with the whole aviation scene, which has been in a free fall for years now. However the GTs remain sought after so I would get ~150k for it now.

I used to be active on the Socata owners’ group. The site is 99% Americans (most of the European pilots gradually left over the past decade) and there is something in that particular community which causes a lot of them to buy planes with loans (compared to Europe where it is very rare, for private aircraft). And many of them get some kind of annual personal asset appraisal worked out by an accountant. I don’t know why exactly but it may be for the bank which lent them money to buy all the stuff they bought with loans Accordingly, these people used to get upset when the market value of their plane fell below the outstanding loan, which was not only guaranteed to happen pretty fast but more to the point they used to get upset when somebody (like me ) used to post stuff on there about say the autopilot problems. They had a secret section on the site (it was secret until one of its members – a British pilot – accidentally mentioned it openly, before the owner of the site living in Florida was able to wake up and delete it, and then they opened it up to all TB owners, having first sanitised it) where they discussed what to do about people like me. Eventually they kicked me out. Anyway, the moral of this little story is: do not buy a private plane with a loan. It is sure to result in misery, IMHO.

It sounds like you are buying a used SR22 or similar which may be already significantly depreciated so you may not be hit too bad but Cirruses do depreciate more rapidly than most – partly due to new and shiny models coming out all the time with loads of gizmos in the panel, and the product line appealing to enough people who can afford a new one.

For depreciation indications, look at used prices and remember that prices actually paid are some 20-30% lower. The dealers never advertise prices actually sought by sellers because that would mark down the entire market. Also some people are desperate to get their hands on a special model (happens with Mooneys quite a lot) and they pay the asking price.

Therefore it cannot be the collateral securing a loan and, for the same reason, neither can a leasing company hold the asset.

That is a very interesting question, but isn’t it the case that most large jets are leased from a bank? The bank then owns the plane. The bank might be a > 75% US owned bank however (or a 75% US owned subsidiary, set up specially for aircraft leasing) which avoids the need for a trust.

I can tell you from experience because this is what I did. A private person can not own a N-reg unless he’s a permanent resident (green card) or a US citizen as you know. However, a US company that’s owned by a foreigner can own an aircraft provided two things:

1. The aircraft flies at least 60% of its hours yearly within the US.
2. The logbooks proving this are easily available for an inspector and kept at a named address.

The FAA will audit the logbooks yearly (with a form).

As for financing I think Peter has nailed the problem. It’s not a very secure asset. But there certainly is a need for some kind of financial instrument to finance aircraft as what we have in place today is not very useful. I can’t see why it has to be tied to the value of the aircraft necessarily – tie it to a combination of things: house, plane, car maybe. They need to be a bit more flexible here. When I was looking to finance here in the US (thank god I didn’t), I was readily approved by this company in Santa Barbara that specialises in aviation. Mainly mid to higher end stuff, like twins, turbines etc. They wanted 50% down and the effective interest was 18%!!! No shortage of clients either – they’d been in the business for decades. Blows your mind.

Obviously, if I were to finance peoples aircraft I would not do it anywhere below 5-8% interest. It’s not a house we’re talking about and the risk is much higher. I’d also make sure I got 30% down at least to protect against loss. I’d also demand some kind of GPS transmitter on aircraft so I could locate it and repossess it in case they didn’t pay.

Does that mean that all N registered aircraft in Europe have been purchased in cash or people have taken a mortgage on their house to buy their airplane?

Cash. Don’t know anybody who’re lending money for it.

Did you ever talk with the guys from WeFly? They arrange to buy shares of an Aircraft.