Grounded by tight budgets, aviation rises again
September 10, 2015
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  • It’s been a slow climb for private aircraft out of the recession, and after a steady ascent last year, the industry appears to be hitting some turbulence.


    The latest data for the first quarter of 2015 shows U.S. deliveries of general aviation aircraft dropped about 14 percent from the first quarter last year. That’s a decline of about 49 planes.


    Nevertheless, the growth of high-tech companies in north Metro Atlanta means the market for aircraft could level off locally. Each year in the United States, general aviation aircraft log 23 million flight hours, more than two-thirds for business purposes, according to the online aviation marketing site AeroWeb.


    “From a financing perspective, a lot of our high-net-worth clients are CEOs or business owners or private-equity people,” said Shannon Swanick, client adviser with SunTrust Private Wealth Management in Atlanta. “They really view private aviation as the ultimate luxury. So, it’s affordable when the market’s good.”


    That means private aircraft is the first thing cut out of a budget when there’s a downturn or any type of uncertainty in the economy, she said.


    In times like this, there isn’t a whole lot of inventory out there, she said, so that can affect a person’s decision on whether to lease or own.


    “People fly private because it provides flexibility,” Swanick said. “It’s efficiency in business by not having to go to the airport, through security and all those things.”


    She said typically, a lot of the transactions she’s seeing are in the $3 to $10 million range


    Rates are appealing right now.


    “Three or four years ago, a lot of banks did not have an appetite for this type of financing, but as the market started to recover and because we’re in a low-interest-rate environment, I’ve done some deals that were priced on a floating rate of below 3 percent,” she said. “If you’re looking for a fixed-rate, term loan, you could be anywhere between 3.5-5 percent on this asset. So, it’s a very good time to leverage if that’s part of your overall plan.”


    It is difficult to get financing for aircraft older than 15 years, she added.


    The most important factor in buying this type of asset, Swanick said, is for an executive to assemble all the people associated with the person or company’s operation: accountants, bankers, attorneys.


    “We look at both sides of the balance sheet to see whether financing a plane is prudent or if using cash is prudent,” she said. “It really depends on the rate environment. It depends on the liquidity of our client.”


    Swanick said she generally deals with business jets, such as the Cessna Citation. Clients could finance through a floating-rate loan or a fixed-term loan.


    Depending on the strength of the liquidity of the borrower, the bank could also look at doing some sort of liquid secured financing where they’re leveraging their own assets.


    “Rates are so low right now, it’s a great time if you’re going to purchase a plane to look at doing that,” she said. “That way if you didn’t want to have that large capital outlay, you could keep those investable assets working for you in the stock market or other investments.”


    Another option businesses choose is to either lease or share ownership of a plane.


    Lisa Senters-McDermott, founder and owner of Jet Senters Aviation, said she sees the market rebounding, similar to what the real estate market went through.


    There are still some pretty good buys out there, she said.


    “There’s just a lot more choices in aviation,” she said. “It’s creating more opportunity for the consumer and more competition for the seller.”


    Jet Senters Aviation is a referral-only full-service boutique private aviation firm based at Peachtree-DeKalb Airport.  It has two divisions, a charter brokerage arm, and a consultancy.


    McDermott stressed that airplanes, like automobiles, depreciate rapidly, so it’s important to take that into account when buying.


    “Business has been fabulous, because we are private aviation advisers for our customers,” she said. “What we do is look at what is going to suit our customers best.”


    McDermott said the first thing a person exploring aviation should do is evaluate how much the plane will be used. If it makes more sense to charter, then the advisers will explore that route, she said.


    Sometimes, she said, clients want to buy the plane and have it available.


    “Say, if you want to purchase a Gulfstream 200, we can bring it onto our fleet, help you choose the proper management certificate to put it under,” she said. “Then, we can manage the plane for you. You can use it when you want, so it’s ready to go whenever you want to fly it. When you’re not using it, then, like a rental house or a beach house, we manage it for you and make sure other people are using it and they’re paying you for the use of that aircraft. So it’s offsetting your costs.”