For both, AOPA Aviation Finance will provide an application package and access to our portal. We'll do the initial review. We'll make sure you meet the minimum requirements for our lending options, and then we'll identify the best lending option that will work for you before introducing you to that lender for their final approval.
At that point, the lender will require escrow; a satisfactory pre-purchase inspection, done by a certified A&P, assessing the condition of the aircraft; and proof of sufficient and adequate insurance in place for the aircraft. “Sufficient and adequate” means enough insurance to cover both you as the owner and the loan amount on the aircraft.
Here's where piston and turbine purchases diverge. In the turbine market, it is common for lenders to require an earnest money deposit. Often with larger purchases, the due diligence that the lender must do includes additional work, like an on-site appraisal, custom loan contract preparation, legal reviews, etc. Due to the time and expense involved in these efforts, lenders are unwilling to incur these extra costs without an assurance that they will be covered, hence the earnest money deposit requirement.
Something many aircraft owners may not be familiar with is the International Registry or the Cape Town Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, aka the Cape Town Convention and Protocol (CTCP).
Established in 2001, its existence is designed “to reduce risks for creditors, and consequently, the borrowing costs to buyers, through the resulting improved legal certainty.” Qualifying aircraft are placed on the registry to ease a.) tracking of ownership; b.) country of registration; and c.) miscellaneous other legal and financial items associated with aircraft capable of long-distance travel and requiring high-value financing.
The threshold criteria for an aircraft to be listed on the CTCP include holding at least eight people, including crew; for jets, engines having at least 1,750 lbs. of thrust; and for turboprop or pistons, engines having at least 550 rated take-off horsepower.
Many turbine aircraft qualify. If the aircraft you’re eyeing meets the criteria, lenders will typically require it to be registered for you to receive financing. Most aviation escrow companies can register aircraft and engines with the FAA and the International Registry as part of the closing process. What does that mean for the borrower? Plan on some added time and added cost.
Another difference between turbine and piston aircraft purchases is the pre-purchase inspection's complexity. Turbine aircraft often have multiple, complex systems critical to the aircraft's airworthiness and operation. A pre-purchase inspection on turbine aircraft should include reviewing these systems and their maintenance history and service schedules.
Turbine engines are also more complex than piston engines. Compared to piston engine overhaul times of 1,400-2,000 hours, a turbine engine typically has an overhaul time of 3,500- 5,400 hours. Along with the difference in recommended overhaul schedules, turbine engines have additional in-between inspections, known as Phase Inspections. Depending upon the aircraft, there can be as few as four and as many as six, in addition to standard hot section inspections. A thorough pre-purchase inspection will outline when the last hot section inspection was done, and which phase the aircraft is in currently. It should also stipulate what other inspections are coming due soon.
Turboprops and jets are highly complex, high performance aircraft that require a certain level of skill, certification, and recurrent training in order to operate them safely. So, who is piloting and managing the aircraft definitely matters to a lender.
It’s common on turbine aircraft for the owner not to be the operator or pilot. It’s also common for somebody other than the owner to oversee pilot hiring. That’s why lenders often require documentation on who will manage the aircraft, who will fly the aircraft, and how both will be supervised. This is especially true if you’re new to jet ownership and not rated or qualified to fly the aircraft. Will the pilot/flight crew also manage the plane? Or will an aviation management company handle one or both of those responsibilities? The lender needs to feel comfortable that their collateral is going to be operated and managed by well-qualified people before committing to a loan of turboprop and jet proportions.
There’s also a significant difference in insurance on turbine aircraft, especially if your missions include crossing international borders. Not only will you need to have appropriate insurance in place for these locations, but you will also want to make the lender aware that international travel is part of your plans.
The last important difference is how long the loan takes to process. Part of that is due to compliance with the CTCP international registry. Part of that has to do with the size of the loan. For some lenders, when a loan hits a certain dollar amount, it requires more signatures. Assembling the bank signatories can take some time. So, as with any aircraft purchase, when it comes to timing, the earlier you start on the financing, the better off you'll be.
Great advice. Great rates. 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.
