No dream stirs a pilot's soul more than that of owning an airplane. From the moment a student starts renting aircraft, the idea of owning one never stops calling. As a pilot gains experience in aviation, their mission becomes clearer, and the kind of aircraft a pilot prefers—from technically advanced to vintage classic— starts to surface. From then on, nothing takes the place of that prodding desire to own an aircraft.
It seems almost obscene to be writing about owning an aircraft in today's climate of half-a-million-dollar price tags. It's no secret that the cost of ownership has risen to the point where sole ownership of a new airplane takes some considerable resources to pull off, or that fewer of us can afford to own an aircraft outright.
Cheap aircraft ownership was one of the chief reasons that aviation flourished after World War II, ushering in what we now refer to as the "Golden Era" of general aviation. In fact, even though I'm a product of the relatively recent 1970s (in GA terms), I remember "For Sale" signs on Piper Cubs and smaller Cessnas in the $3,000 range! When I was in the fourth grade, a neighbor of ours bought an old P-51 Mustang for the outrageous sum of $10,000. Today, that wouldn't buy the warbird's Plexiglas canopy.
Still, aviation ownership is possible. The nature of it has changed—one reason is that flying clubs are starting to flourish—but owning an aircraft is still one of the most rewarding feelings. When I hear pilots complain that "nobody can own an airplane anymore," I point to the dozen or so ads in every issue of Barnstormer or Trade-A-Plane advertising Cessna 140s, Piper Tri-Pacers, Aeroncas and a fistful of others—all for under $20,000. Put four pilots together to buy an aircraft like that, and you've got a dandy, four-gallon-per-hour fun machine that costs less to own than an old Buick. Ownership isn't impossible—it's just not as freewheeling as it once was.
If you have the resources, new aircraft offer an experience that matches (and sometimes beats) the airlines, and we've written about plenty of those in this magazine. We live in an era of 250- knot, fixed-gear piston singles and air- conditioned cruisers that can transport four people a thousand miles in any direction without stopping. On the light- sport front, a hundred grand will put you in a brand-new little sport coupe with great handling and miserly fuel consumption. Throw in an extra $25,000, and the LSA world opens like an oyster, revealing so many different aircraft that it puts Willy Wonka's factory to shame.
Most individuals who want to purchase an aircraft either don't have the cash to do so or have business and tax reasons that prevent them from buying the aircraft outright. Third-party lenders will loan the money to these individuals. Financing the purchase of a private aircraft is similar to a home mortgage in many ways. The basic financing process for a small personal (or even corporate) aircraft is as follows:
1 The prospective buyer ("borrower") fills in an application with basic information about themselves and the aircraft they propose to buy and submit the application to a lender.
2 The lender performs an appraisal of the aircraft's value.
3 The lender performs a title search based on the aircraft's registration number. They confirm that no liens or title defects exist. The lender might procure a title insurance policy to protect against any undetected problems with the aircraft's title.
4 Lender prepares the following transaction documents:
Promissory note: This makes the borrower responsible for any loan balance not covered by repossession of the aircraft, if the borrower defaults on the loan.
Security agreement: Establishes a security interest in the aircraft by the lender so they can repossess it, in the event the borrower defaults on the loan.
Third-party guarantee: If the borrower has a questionable credit score, the lender may require a security assurance from a third party (or parties) that confirms they'll cover the loan if the borrower defaults.
5 At closing, the loan documentation is executed (signed), funds are wired to the seller and ownership title transfer is completed.
An aircraft buyer looking for financing has a choice of lenders to approach. Some banks, like Bank of America, have special relationships with pilots and are accustomed to making aircraft loans. In Bank of America's case, they've established ties with AOPA and offer a number of financial products specially geared toward pilots. The advantage of a bank that has experience with aircraft lending is the speed and efficiency with which the transaction is completed. Experienced lenders can do the title search quickly because they already have relationships with those entities. The same thing goes for securing the right paperwork and accurately appraising the aircraft. Credit unions are similar to banks and often offer aircraft loans.
Independent dedicated lenders are the third option for financing. These include companies like Dorr Aviation, AirFleet Capital, AirLoan and National Aircraft Finance Company, among a few others. Dedicated aviation lenders like these know exactly how to handle your transaction and are experienced in the nuances of aircraft purchases.
In all cases, the best advice for prospective buyers is to get pre-approved. Pre-approval for financing allows a buyer to act quickly if the right deal is found and gives the buyer time to look for an aircraft with the security that financing is ready.
There are some basic requirements to meet before you may qualify for an aircraft loan. Typically, these are:
• credit Score of 700 or better
• debt-to-income ratio of 35% to 45%
• a 15% to 20% down payment
• sufficient "reserve" funds so the aircraft purchase doesn't leave you with empty bank accounts
• a 20-year payback term is typical, similar to a mortgage
Insurance is where many owners are misinformed and where the greatest confusion exists. We spoke with Greg Sterling, senior vice president and global product line manager for AIG, one of the biggest insurers in general aviation, to help dispel the myths about insurance.
Sterling explained that the essence of an insurance policy for an aircraft is that the insurer is weighing the risk that it may have to pay out on a claim in the event you damage the aircraft. The insurance company charges you a "premium" (or fee) in exchange for its acceptance of this risk. The greater the risk, the more expensive the insurance premiums will be. The factors that affect your insurance premiums include the type of aircraft, time in type, general pilot qualifications and ratings, and the nature of your operation. An aircraft insurance policy covers two areas: hull coverage and liability coverage.
The term "hull coverage" originated from the fact that the world's first aircraft insurance policies were based on maritime (ships and boats) policies, because they were the closest thing available at the turn of the century. This covers physical damage to your aircraft and comes in three types (in order of cost):
• Full flight coverage (this covers the aircraft at any time, sitting still or flying)
• Ground and taxi coverage (refers to any time the aircraft isn't flying)
• Ground, not in motion (exactly what it says—the engines can't be operating)
You should only carry as much hull coverage as your aircraft is worth. Thinking that they'll be "extra secure," some owners will insure their aircraft for a sum greater than the appraised value. According to Sterling, overinsuring is a mistake.
Under a normal policy, if you have an aircraft accident and the estimated cost to repair that aircraft exceeds 75% to 85% of your hull insurance policy limit, the insurance company will declare the aircraft to be a total loss and pay you the coverage limit (less deductibles). But, if the damage is less than 75%, the insurance company could require you to repair it.
Say you insure a $100,000 airplane for $140,000 and you have an accident that causes extensive damage to the aircraft. If the repair cost is less than $105,000 (75% of $140,000), the insurer could require you to repair it. A $100,000 repair is basically a wrecked airplane. In that scenario, you'd be stuck with an airplane that will take six to 12 months or longer to completely rebuild and will have lousy resale value because of the damage history, not to mention the bad ju-ju of a wreck.
Underinsuring is just as bad. If you underinsure an aircraft to save on monthly premiums, you could lose a potentially valuable aircraft. In that scenario, an owner completely refurbishes a $70,000 aircraft with new paint, interior, the latest advanced glass panel and a slew of avionics, bringing its true value to around $100,000. The owner insures it for $50,000. If the owner experiences a prop-strike or minor collision on the ground, the engine would have to be torn down. That could mean a repair bill of around $40,000. Because that exceeds 85% of the insured value, the insurer could take possession of the aircraft and leave you with a check for $50,000, less deductibles and salvage price. Meanwhile, you lost a perfectly good aircraft with a fortune in upgrades.
The moral here is that you should insure your aircraft for exactly what it's worth in market value. "Neither over- or underinsuring is of any benefit to the owner," added Sterling.
Liability is the second feature of aircraft insurance. It protects you from liability or responsibility to third persons for damages they may suffer resulting from the operation of your aircraft. With liability coverage, the insurance company will pay the third party directly, up to your policy limit.
Liability coverage comes in two forms: "sub-limit" coverage or "smooth" coverage. This pertains to the language in your policy that refers to "per occurrence" and "per passenger." Sub-limit coverage is a policy that provides for $1,000,000 per occurrence and $250,000 per passenger. It means the maximum total amount the insurance company will pay is $1 million dollars, but only in $250,000 increments to each passenger. If you have a two-seat airplane and the passenger is injured, the policy will only pay a maximum of $250,000. The rest must come out of your pocket.
"Smooth" coverage is more expensive but extends the per-passenger amount to the policy limit. In the previous scenario, smooth coverage would mean that the accident would result in the insurance company paying up to $1,000,000 to that one passenger. If two passengers were involved, smooth coverage would pay $500,000 each.
Because insurance can be a complex subject, we also spoke to Jon Harder from Aviation Resources, another large insurer of general aviation aircraft. One of the bits of insurance advice he offered was compelling owners to also purchase non-owned ("renter's") insurance. According to Harder, such insurance helps cover the "gap" between your normal policy's deductible and the insured amount. "Even if they buy non-owned insurance for the liability coverage, it's worth it," said Harder. "For the price of an hour with an attorney, a pilot could get a non-owned policy that could be critical in the event of a claim against the standard policy."
There's much more to the aircraft- buying game and prospective owners would be well-advised to research all they can, prior to making a purchase. Some additional areas to investigate are pre-qualification calculators to help you determine how much aircraft you can really afford, the pre-buy inspection that's a key task in buying a used aircraft, consideration of partnerships and fractional ownership, and—as AOPA has been promoting—the idea of purchasing an aircraft for use in a flying club. They're all factors to consider in fulfilling your dream of finally owning an aircraft. Trust me, there's nothing like it.
|Finance and Insurance are both areas where rate and services can vary widely. It's important to note that some companies specialize in a certain market (e.g. jumbo loans or higher-risk aircraft). The trick is to find the right company to finance or insure your particular aircraft. Most underwriters agree that half of the battle of purchasing aircraft insurance is working with the right agent or broker and valuing your aircraft correctly. There are a few companies that have established reputations, and we have listed those below. For a more comprehensive list of finance companies that specialize in aircraft purchases, start at National Aircraft Finance Association at www.nafa.aero.|
|Dorr Aviation||Dorr started more than 45 years ago as a Cessna and Piper dealer and today provides financing for everything from piston singles to large jets.||www.dorraviation.com|
|AirFleet Capital||Loans for all types of aircraft with values that start at $75,000. A variety of loan types and terms.||www.airfleetcapital.com|
|Bank of America||Lots of experience with aircraft financing. Features many financial products for pilots. $10,000 minimum.||www.bankofamerica.com/vehicle
|AOPA/Pilot Bank||AOPA launched aircraft financing through Pilot Bank in 2013. No website yet, but call (800)-62-PLANE for rates and products.||Call (800)-62-PLANE.|
|CIT Aerospace||CIT specializes in leasing and business aircraft financing.||www.cit.com|
|US Aircraft Finance||Direct lender offers loans from $25,000 to $1 million on new and used aircraft.||usaircraftfinance.com|
|National Aircraft Finance Company||Over 30 years of experience. Loans up to 90% of aircraft value. Offers a broad selection of loans types and terms.||www.airloans.com|
|PNC Aviation Finance||Financial giant PNC acquired Aviation Finance Group (AFG) in 2004. Has funded over $1 billion in aircraft loans the past five years.||www.pncaviationfinance.com|
|First Pryority Bank||Specializes in piston singles. This lender offers additional aviation services like escrow, ag loans and appraisals.||www.1st-of-pryor.com|
|Avemco||One of general aviation's largest insurers. 50 years' experience. Huge variety of insurance products.||www.avemco.com|
|AOPA Insurance Services||AOPA's official insurance division. Online quotes, calculators and great service. Offers a variety of products.||insurance.aopa.org|
|USAIG||One of the first aviation insurers. USAIG is a pool of member firms with A to A++ ratings. Large network of offices and related services.||www.usau.com|
|U.S. Specialty Insurance Company||Represents several underwriters. Long list of aviation insurance, airport policies, and specialty aircraft insurance products.||www.hcc.com|
|Falcon Insurance||Endorsed carrier for several aviation organizations including EAA, Cessna Pilots Association, American Bonanza Society and several others.||www.falconinsurance.com|
|Travers & Associates||Since 1950, one of aviation's best- known brokers. Represents a large number of insurance companies.||www.traversaviation.com|
|Chartiss||Formerly IAG. Chartis offers owner policies, non-owned, ag insurance and more.||www.chartisinsurance.com|