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Lenders leery of leasebacksLenders leery of leasebacks

Why leasebacks require gentle persuasion 

Are you planning to purchase an aircraft for leaseback to a flying club or flight school? You will find most aircraft lenders are hesitant on a good day and unwilling on a bad day to make loans for such aircraft. Here’s why.

The reasons vary between flying clubs and flight schools. Many lenders won’t loan money for an aircraft going to a flying club because the lender is concerned the aircraft will be used too much. If a flying club aircraft comes back to the lender in the event of a loan default, it would be hard to sell with a run-out engine, thus difficult to make a profit or break even on the loan. On the other side, the aircraft will at least be treated well by flying club pilots who already know how to fly. Still, there are several lenders that finance for flying clubs, and AOPA Aviation Finance can help you find them.

Flight schools offer a greater challenge for lenders. Not many will make loans for leaseback aircraft, especially on smaller loan amounts. Why? Let’s assume the worst case scenario of the engine being run out, not only is most of the aircraft value gone, but on older lower dollar aircraft the cost to overhaul an engine may exceed the value of the aircraft. Not only are lenders concerned about excessive usage and run-out engines as is the case with flying clubs, but also they are concerned about damage history. An aircraft is likely to be in worse shape overall than if it had been used by a private owner. While flight schools have a good maintenance reputation, an aircraft still lives a harder life than it would in a flying club.

Lenders must consider what will happen if the loan goes bad and they get the aircraft back. Not only might the engine be run out, but with potential damage history, the market for buyers will likely be significantly smaller.

This doesn’t mean you can’t get a loan. Loans can still be made in both cases for aircraft used in flying clubs and flight schools. But leaseback buyers don’t have the same loan options as do those purchasing aircraft for personal or business use.

Over the years, buyers have gotten loans without mentioning the intended use, and have gotten into misunderstandings with the lender. That’s why you will be asked about the intended use by AOPA Aviation Finance. It can save you trouble later if the lender knows the intended use at the outset. You may find a few additional conditions listed in the loan contract for flying club and flight school aircraft.

Let AOPA Aviation Finance guide you through the hoops and keep you clear of such hidden problems when buying aircraft for leaseback. 

Considering aircraft ownership? AOPA Aviation Finance will make your purchase experience as smooth as possible. For information about aircraft financing, please visit the website (www.aopafinance.com) or call 1-800-62-PLANE (75263). 

Adam Meredith

Adam Meredith

President of AOPA Aviation Finance Company
Adam Meredith, President of AOPA Aviation Finance Company, is an aircraft finance professional with more than 15 years lending, small business management and customer service experience. Adam is a commercial pilot with multi-engine and instrument ratings.

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