Part Two: Inspections, Appraisals, and Delivery Timelines: Where Deals Most Often Slow Down

In the first part of this two-part series, “Common Reasons Loans Stall Out—and How to Keep Your Deal on Track,” we covered how thorough, accurate documentation—from financials to proper registration—helps lenders clearly assess risk and keeps the aircraft financing process moving forward.. A second aspect of purchasing an airplane that must be addressed early on is ownership structure. Often, in the case of turboprops and jets, ownership structure is something other than an individual. Both lenders and the FAA need to clearly understand the complete chain of ownership.

Is the ownership entity an LLC formed by an individual specifically for the aircraft (e.g. My Airplane LLC)? Or is it an aircraft ownership LLC owned by the borrower’s widget manufacturing company? Or is it the borrower’s holding entity, which owns the widget manufacturing company that will own the aircraft ownership LLC? Those multitude of layers must be clearly traced back to the individual or the entity that is guaranteeing the loan. It’s best to determine the ownership structure early on and commit to it.

Often, we’ll see a borrower identify an aircraft, get everything all set up, and sign a purchase agreement based on the individual buying the aircraft. Afterwards,  they may talk to their financial advisor who advises them to establish ownership through an existing entity or to create a new structure for tax savings or liability protection. A change in ownership structure will require amended or additional documentation, creating a choke point in the loan process.

If the borrower chooses a different entity to buy the aircraft, the lender will likely require an updated purchase agreement specifying the actual entity purchasing the aircraft. The paperwork must clearly delineate the entity and all others involved in owning that entity, all the way back to the individual behind the entity that owns the aircraft.

While not all ownership structures will have an individual who owns the ownership entity (C-Corp, for example), many lenders will still require a personal guarantor on the loan.  They’ll need to understand the relationship between the ownership entity and that guarantor before granting a loan.

The third element to keeping the loan process on track is getting a timely inspection of the aircraft. There are two types of aircraft inspections. Either can stall the process if not handled correctly.

The first is aircraft valuation. It is common for lenders to require an on-site appraisal with high-value aircraft. This is because many aspects of the condition, avionics and engines on these aircraft affect their value more than on piston aircraft. Usually, the only way to ascertain the true condition of a high-value aircraft is to have a certified appraiser physically inspect it.

Depending on the current location of the aircraft, and the seller’s willingness to move it, scheduling an on-site appraisal can take some time.  If a local appraiser is not available, many are willing to travel to the aircraft to complete their review.  Travel takes time and coordination to make sure the appraiser will have full physical access to the aircraft.  Results of the appraisal may identify issues that justify further negotiations or pre-closing maintenance and repairs.

The second type of inspection to consider is the pre-purchase inspection.  While common in all aircraft categories, the pre-purchase inspection on a turboprop or jet is much more in-depth. Sophisticated equipment and well-furnished facilities are often required to complete a thorough inspection on high-value aircraft like these. 

Over the last few years we have seen frequent back-logs at MRO (Maintenance, Repair, and Overhaul) facilities.  While the backlogs appear to be easing, it’s best to get pre-purchase inspections scheduled as early in the process as possible.  In some cases, you may be working with a dealer or broker that can facilitate both the appraisal and pre-purchase inspection,  Better yet, some aircraft come to market with these steps already complete in an effort to streamline the closing process.  If you can line up one of these options, it’s a great way to streamline the process.

The potential scheduling delays mentioned above can make it seem like buying new is the way to go.  When you buy new, standard appraisal and  pre-purchase inspections can be avoided because the aircraft is in factory-new condition, likely with a significant factory warranty in place.  The lending value is primarily based on your settled price with the sales rep. The downside to buying new is that there are far fewer new aircraft compared to what’s available in the pre-owned market. OEM’s have also had consistent backlogs for the last few years, so you may end up waiting significantly longer for something new than buying pre-owned.

Which brings us to our final common delay: Closing and Delivery.  Whether the aircraft is delivered new with all the fanfare that appropriately accompanies such a purchase, or if it is just buyer and seller shaking hands and exchanging keys, there are a lot of moving parts to closing a loan and taking delivery of an aircraft.  Personal schedules, travel arrangements, wire deadlines, and weather all come in to play when it’s time to seal the deal.  It’s best to talk about logistics early in the process and make plans for delivery location, date, and time.  Doing so allows all involved parties sufficient time to complete their responsibilities for a successful delivery.  From your first purchase to your last, taking the time to prepare, plan, and schedule ahead will keep your aircraft financing moving smoothly forward.

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.