How Do Lenders View TBO and Types of Engine Overhauls?

The engine is probably the most expensive single component of any aircraft. And all aircraft engines have a suggested service life called a “time between overhaul” (TBO). 
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When an engine is near or at the manufacturer’s recommended TBO, it is customary for that engine to be overhauled. The varieties of overhauls fall into two categories—a complete overhaul or a partial overhaul.

Lenders are loath to make a loan on two types of aircraft: those that have had partial overhauls near TBO and those with engines close to TBO. Furthermore, lenders use the same aviation resource pricing digests that buyers do—Vref and Bluebook among them. If those guides reduce value to a high-time or at-TBO engine, then the lender will as well. Lenders tend to view the world from a worst-case scenario. The worst-case scenario in both of these cases would be for a borrower to suffer a hardship and default on loan payments on an aircraft with an engine(s) nearing or at the TBO cutoff.

That would leave a lender with a repossessed airplane that needs an engine overhaul. Consequently, the lender would have to sink money into the airplane before it can be resold, PLUS there’s the added cost of lost time. Performing a complete overhaul takes weeks, at minimum. That means while the airplane is in the shop, the bank is losing money on an asset it’s paying to make marketable again. No bueno.

That explains why a number of lenders won’t do loans if an aircraft engine is beyond TBO. Some even require an engine overhaul as a contingency for making the loan (or holding back money in escrow for an as yet to be performed overhaul). That may seem self-serving, but it does benefit the borrower too. Forcing an overhaul into the deal provides potentially more money to be made available for an overhaul.

For those same reasons, there are a number of lenders who, in the piston world, are only going to want to transact loans where the aircraft has no less than half of its engine TBO life left.

Final note: From a lender’s perspective, the difference between a major overhaul and re-manufactured engine is small. While we can appreciate why an owner would want a factory re-manufactured engine, the lenders are still going to treat the two of those roughly the same.

Great advice. Great rates. From helpful and responsive reps you can trust. Three good reasons to turn to AOPA Aviation Finance when you are buying or refinancing an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (800.627.5263), or click here to request a quote.


Adam Meredith

Adam Meredith

President of AOPA Aviation Finance Company
Adam Meredith, the longtime president of AOPA Aviation Finance Co., died after a long battle with cancer in December 2023. He is remembered for his passion for helping fellow pilots, leading a team devoted to putting flight training and aircraft ownership within everyone’s reach.
Topics: AOPA Products and Services, AOPA Aviation Finance Co, Ownership

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