Thursday, May 1, 2008
|The Spring 2008 Airplane Market |
|How’s it doing?|
|By Barron Thomas|
|Airplanes are selling, financing is at all-time attractive rates and terms, the new tax write-offs for general aviation (GA) are the best tax incentives in its history, and prices have settled down from the peak of the real-estate boom. All in all, it’s a pretty good time to buy, and savvy pilots are taking advantage of this perfect storm of events. |
Most GA airplanes that are 1978-vintage and newer, and above $25,000 in value, can be financed for 20 years at fixed rates hovering around 7% (if you’ve got reasonably decent credit). Decent credit is normally defined as a credit score of 670 or better, in addition to a good income, which means you can prove that you’re able to feed your family, make house payments and still cover the airplane payment. Mathematically, lenders generally want to see a debt-to-income ratio of 45:100 (in plain English, your total monthly obligations, including airplane, don’t exceed 45% of your gross income).
Cessna Finance, Air Fleet Capital, U.S. Aircraft Finance and Dorr Aviation are all eager to help you get the airplane of your dreams. They’re easy to work with and generally respond within 24 hours if you have your financials ready (your last two years’ tax returns and a completed credit application). Each lender has slightly different requirements for loan amounts and terms, and some are more creative than others when it comes to self-employed people who don’t show a lot of “taxable” income but can otherwise prove their assets/net worth and have a good credit rating. Airplane finance rates have never been this attractive, and today’s low rates will more than offset the higher fuel costs.
Teri McGreevy of Cessna Finance (www.cfcloan.com) says, “Cessna normally wants to see deals of $100,000 and above, and will quote rate and terms on an individual, case-by-case basis.” Cessna’s regional reps are eager to assist prospective purchasers of all aircraft types. Bob Howe of Dorr Aviation (www.dorraviation.com) is quoting an average of 6.75% fixed for 20 years on loans of $50,000 and above. Dorr, like many lenders, has a $25,000 minimum loan amount. Howe adds, “Dorr is very close to rolling out a ‘no doc’ plane loan program for borrowers with strong credit. Our lenders are looking for something more secure and safe than real estate right now, and they realize that GA is a stable market.”
Air Fleet Capital (www.airfleetcapital.com) and U.S. Aircraft Finance (www.usaircraftfinance.com) offer competitive programs designed to get you quickly and easily into airplane ownership. The math works, so take advantage of these programs while they’re being offered.
Insurance is still affordable and easy to obtain. Chuck Wenk and his two children run what may be the country’s largest and oldest aircraft insurance agency, Wenk Insurance (www.wenkinsurance.com). Wenk can provide aircraft insurance in every contiguous American state (at one time or another Wenk has even insured Jimmy Buffet and Oprah Winfrey). He confirms, “There’s been no lull in the market for insurance, and demand is still on par with the last several years. Although the economy has changed in reaction to real estate in some parts of the country, people are, by and large, keeping their planes, and rates haven’t really changed.”
The newly signed Economic Stimulus Act includes a wonderful gift for GA. Everyone wants a plane, but sometimes an extra justification or nudge is needed. The liberal depreciation rules for 2008 are just the answer. GA tax credits have never been this good, but don’t delay, they’re expected to expire at the end of 2008. As always, consult your CPA for the details of how this will apply to your situation.
Pricewise, it’s natural that nothing today is bringing what it did at the peak of the real-estate bubble (2005–2007). Historically, airplanes have proven to be a safe haven of value over the years, but they, like most assets, can ebb and flow with economic times. Boom times generally tighten the supply of airplanes and raise prices; economic slowdowns do the reverse. One of the true economic utilities of GA is that, unlike a house, an airplane can be moved to an area of the country that’s doing well. Proof that GA airplanes are a sound investment is the fact that financiers are offering 20-year terms on even airplanes built in the late 1970s. The recently soft U.S. dollar has a brought a wave of buying activity from around the world. GA airplanes are now being exported in numbers not seen since the mid-1980s.
The good news for buyers is that there are a few more airplanes for sale than two years ago; so the selection is better and prices are more attractive. This may be the right time to buy. Bargain financing rates and generous gifts from Uncle Sam always make airplanes sell; a buyer who procrastinates or expects a “pie-in-the-sky” bargain may find that good deals and airplanes will soon be picked over.
Flying is wonderful all by itself, and getting Uncle Sam’s “help” during the purchase process makes an airplane that much sweeter.
It seems that changes in the economy haven’t impacted GA. Grab your calculator, do the math and buy an airplane!