Make a call to Saint Cloud, Savannah or Montreal and you will get the same answer: “our first availability is in Q1 2028.” And that’s “if you’re lucky,” they should add. Even buyers who traditionally get new aircraft are turning to the pre-owned market for immediate needs.

With the percentage of the global fleet available for sale now stable around 7%, demand and supply seem to evolve at the same pace. The predicted post-COVID-frenzy collapse is not happening.

Meanwhile, the average age of the fleet keeps increasing, with 25% of the installed base now 25 years old or more. This makes younger pre-owned units even more desirable, keeping values high, though not as high as during the COVID era.

All these data points are good news for financiers and aircraft buyers. Stabilizing prices at reasonably high levels means predictability for resale values. In parallel, a close-to-equilibrium market with a “sustain-stable” (apologies for the neologism) inventory provides for monetizing repossessed assets and reduces risks.

But the interest rates…

Let’s say loudly what Wall Street whispers: high interest rates represent the highest barrier to aircraft finance expansion, though insurance is close behind. With aircraft loan rates ranging from 6.25% to close to 9%, the incentive to buy aircraft with cash remains high.

Fed meetings later this year seem to indicate a coming rate cut. But don’t get too excited: this cut is likely to be symbolic (25 bps?). We are not going to see borrowing terms as low as in 2017-2018 anytime soon.

The classic instrument on the market is the good old loan. What do we see on the marketplace?

• Loan-to-value (LTV) has generally held at ~60%-70%
• Financing is usually over 5–10 years depending on underwriting guidelines
• Interest rates are in the high 6% to low-8% range, benefiting from broader macroeconomic easing than commercial aircraft

However, commercial banks turn away requests to finance aircraft that are 12 years old or older. Regional banks can be more flexible for their faithful clients but within limits. Private bankers can be creative but will share the risk in some way. Newcomers are more the exception than the rule.

Alternative Financing Models

The difference between commercial and business aviation in terms of financing products remains. Some products are gaining in popularity though:

• ABL (Asset-Backed Lending): some lenders provide this product. Upside: you can buy an aircraft with a less than stellar credit. Downside: this is not a cheap proposition.
• Sale-and-Leaseback: You don’t want to miss this pristine Global 6000? Buy it with cash and do a sale-and-leaseback with a lessor. You get the aircraft you want, have the time to shop for the best lease terms and you still put the cash back in your business!
• Finance Lease: you want to fancy up your loan to match the time your planned fleet renewal? A finance lease with a 30% balloon is probably what you are looking for. Your Controller will hate you as lease accounting for this type of contract is hell.
• Operating Lease: this ubiquitous product in commercial aviation is seldom used for business jets. True, many financial institutions lost money on those during the last financial crisis and have since shied away from it. Also true, US buyers will not benefit from the accelerated depreciation. However, you can put your cash elsewhere and get a better return. Bonus point: your Controller won’t hate you as much as with a finance lease.

And if you can find them…

Other, slightly more exotic, financing products are available to commercial aviation but rather unknown in business aviation. EETCs (Enhanced Equipment Trust Certificates) and JOLCOs (Japanese Operating Lease with Call Option) are among those. At the time these lines are written, few institutions have looked at applying those products to business jets.

Digital Platforms & Blockchain

Digital marketplaces, AI-driven analytics, and blockchain-enabled transactions are streamlining buying and financing of pre-owned aircraft. The rate of adoption is slow though, mostly due to regulators struggling to onboard new technologies.

At the same time, the profile of aircraft buyers is undergoing a significant evolution as generations of executives and businesspeople are changing, bringing a shift in expectations:

• Aircraft types: aircraft with modern avionics, state-of-the-art communication systems and strong maintenance history are favored
• Speed of transaction: months to move an aircraft from one registry to another is no longer acceptable
• Ownership structure: it is OK to share the aircraft. There are more options to do this now
• Financing structures: the aircraft is personalized. So should be the financing. The quality of the relationship with the financier can make the experience range from hellish to fun.

The North American market remains by far the largest in volume. However, it is a sluggish market with low CAGR and lots of cash buyers.

European markets are showing more activity with cross-border transactions becoming more frequent and well-known. The maturity of those markets, in terms of professionalism of the transactions, is now on par with North America. The Asian and African markets remain challenging for financiers, in terms of KYC and validation of collaterals and guarantees. However, tools are now available to ease this concern.

While the financing of pre-owned aircraft remains an exercise that is not for the faint of heart, it has become easier, faster and with more options in the last decade. As players on this market embrace new technologies and adapt to a new clientele, more demanding than their predecessors in terms of experience, the best is yet to come.