Smart Business talked to C. Wayne Starling, vice president and national sales manager with PNC Aviation Finance, a division of PNC Equipment Finance LLC, about who is using general aviation, and why.
What is behind the rise in popularity of corporate and private planes?
Several factors are driving the increase in general aviation. Strong economic conditions of the past few years have resulted in the creation of a significant amount of wealth, providing more individuals the means to purchase their own plane.
There is also the convenience of owning your own plane. For example, the management team of a middle-market company can visit multiple plant locations in one day and still be home that night a trip that might involve multiple days flying commercially.
Anyone who has flown commercially recently understands the challenges that exist. At a time when airports seem to be busier than ever, many carriers are limiting the number of flights, and even eliminating certain routes altogether. Security measures have increased, leading to longer wait times and delays.
One of the biggest drivers behind the general aviation boom is the prevalence of financing options available. Not including fractional-ownership programs, which offer partial ownership of a plane, there are several creative solutions plane owners can consider in order to finance their aircraft.
How do you finance a plane?
Historically, planes were financed through traditional bank loans, or for the ultra-wealthy, by paying cash. Nowadays, there are numerous loan programs to choose from, with varying rate options (fixed, floating, hybrid) and loan structures.
Leases are also available, and can be structured to allow borrowers to keep the asset off their balance sheet while providing up to 100 percent of funding for equipment acquisition costs for example, interest charges on advance payments, or sales and use taxes.
One of the most popular financing options is an asset-based loan. An asset-based loan allows you to borrow against the value of the aircraft with reduced disclosure obligations for personal and financial information. Asset-based loans do not require a borrower to put other valuable assets up as collateral, freeing up borrowing capacity for other uses. This is an excellent option for a cash buyer because it allows you to spend your capital elsewhere, instead of leaving it parked on the tarmac.
What should you consider before purchasing a plane?
Securing financing is a major consideration. But before you purchase a plane, particularly if it is your first aircraft, there are several things to keep in mind:
- Does the aircraft have the range, payload, speed, operating economy and runway requirements to meet your needs?
- Will you pilot the plane yourself or hire a professional pilot? Will you hire/outsource the management of your aircraft or handle it yourself?
- Beyond the cost of the plane and fuel costs, have you considered additional expenses scheduled and unscheduled maintenance, flight crew costs, management costs, landing fees, taxes, hangar fees, training costs, insurance, etc.? For example, even if the plane seems like a bargain at $1.5 million, the fixed costs could exceed $400,000 annually, with direct operating costs of $2,000 per hour.
Given all these points to consider, it is important to work with a consultant or adviser who has your best interest in mind. Surround yourself with knowledgeable, experienced aircraft experts who understand the value of the plane you are about to purchase and how it will fit into your near-term and long-term goals.
This was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.
C. WAYNE STARLING is the vice president and national sales manager with PNC Aviation Finance, a division of PNC Equipment Finance LLC. As one of the nation’s leading sources of corporate aircraft finance, PNC Aviation Finance can deliver asset-based loan programs, traditional credit-based loans, flexible lease options and fixed rate, floating rate and hybrid loan solutions. Reach him at (888)-339-2834.