Jan. 21, 2016

Predicting a number of changes to the financing market for business aircraft in 2016, Michael Francis, vice president of sales (US-East) for CIT Business Aircraft Finance, is monitoring three key areas: aircraft values, interest rates and bank regulations.

“Aircraft values have been fairly volatile over the past several years, and residuals may not stabilize in 2016,” said Francis. “A significant challenge for lenders is predicting an aircraft’s value to ensure that the loan has sufficient collateral value protection.”

Looking at new aircraft orders and overall transaction activity, there is still uncertainty in the market. “When lenders are unsure where business aircraft values are headed, it creates a challenge for us, especially with lease financing,” Francis said.

Additionally, compliance with the ADS-B mandate will affect the value of older aircraft and those financed with longer-term deals. Aircraft must be ADS-B equipped by the Jan. 1, 2020, deadline. “Having the proper avionics to fly in Europe and in the U.S. is a consideration because it is a factor in the residual value of the aircraft.”

Interest rates are the second area of interest. The Federal Reserve announced a rate increase recently. “It wasn’t a large increase, but rates could continue to increase in years to come,” Francis said.

The financial regulatory environment also is changing. “Regulated banks have implemented the necessary policies and systems that address new regulatory requirements,” he said. “One change borrowers could see from these new regulations are higher rates, which stem from higher economic reserves banks place against loans.”

Over the past few years some new lenders have entered the market. “They have been more active outside the U.S. market, but that seems to be changing as they finance older aircraft and credits that regulated banks are not comfortable lending on,” he concluded.

Francis will delve more deeply into these areas, as well as provide an overview of lending options, during his presentation – Business Aircraft Financing Market Update & Trends – at the NBAA West Palm Beach Regional Forum at Florida’s Palm Beach International Airport (PBI) on Jan. 28. The event includes exhibits, static aircraft displays and a session on the state of business aviation, including FAA reauthorization legislation.