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Aircraft Financing Interest Rate Update

Chris Rose Senior Photographer Copyright 2013, Aircraft Owners and Pilots Association

The Fed has been working very hard to get inflation under control, and we've had significant and consistent increases in interest rates recently to try and slow the economy. That obviously has a direct correlation to what it costs to borrow. Aircraft finance is no more immune to what the Fed does than any other industry.                           

From my perspective, I'm frankly surprised that with all of the moves the Fed has made, we can still get loan rates in roughly the same range as what we've been providing in the last 10 years. So, from that standpoint, it's not all terrible news.                                                                                                                                                                                                                                             

For some time, we've had a run of pretty mild interest rates. And as such, folks have come to expect this unusual period of low interest rates to be the norm. Over the long term, this is not the norm. Historically speaking, where rates are currently right now is actually fairly normal. We're approaching the region that the Fed refers to as the “long-term equilibrium rate.” At some point, the economy is going to cool off. That's probably going to take some time, not months, but years before it angles back up.                                                                                                                                                                                                                                                                 

At the same time, there's a massive macro issue that our industry faces. That is the production of new aircraft is less than 2% of the current fleet. The market loses about three times that number of aircraft in a given year due to obsolescence, wrecks or whatever. This issue of increasingly limited supply is not new, in fact it predates the COVID pandemic, supply issues and the Great Labor Realignment. In the last 2 decades there’s only been two major aircraft manufacturers entering the market with any significant success (defined as number of units made) Cirrus and Tecnam. Until other new entrants are able to offer light aircraft at affordable pricing, something AOPA is actively working on supporting, this supply/demand conflict will only keep continuing.                                                                                                                                                                                                            

The combination of successive rate hikes is why banks are strictly adhering to any rate lock periods they may grant. While higher rates benefit them too, the real issue is their cost of money is going up which provides a disincentive for extending rate locks and which impacts their core source of income, net interest income.                                                                     

Under these economic conditions, AOPA Finance advises that whatever rate you get, make sure you can accept it as the rate you’re going to pay for the life of your loan. Refinancing in the short term when rates might go down isn’t likely an option. If history is any guide, we’re entering a normal phase of the economic cycle, and this phase can last 1-2 years, not 3-6 months, which means any significant rate reductions might occur in 2-3 years.                                                                                                 

 

Bottom lines: Rates are going up, which leads to an urgency to do something. People may not be able to get the airplane they want because they’re losing deals to cash buyers. The best thing you can do to protect the rate you’ve locked in is to have your financials and pre-approvals, even the targeted aircraft, all configured before approaching a financer for a loan. That means getting your financial and legal houses in order, with all documentation ready. AOPA Finance is here to guide you through that pre-flight process.                                                                                                                                                                                                                                                  

Great advice. Great rates. From helpful and responsive reps you can trust. Three good reasons to turn to AOPA 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, 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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