A robust used business aircraft sales market is driving another record year at PNC Aviation Finance (Booth 3045), according to Keith Hayes, the firm's senior vice president and national sales manager. “We are doing more deals with used aircraft, and that is following the market. The used aircraft market has been extremely active and we’re seeing a direct correlation on the finance side,” he said.
PNC has closed more transactions annually since 2009 than any other aviation finance company in the U.S., and 2018 is shaping up to be a record year, Hayes added. “Activity is as high as it has ever been since the downturn [of 2008].” The midsize jet space is particularly hot at the moment, he said, “But we are committed to all cabin sizes. We’ve also seen quite a bit of turboprop activity.”
Hayes believes the table has been set for new aircraft sales to make a meaningful move, perhaps as early as next year. “People are concerned about what is going to happen in 2019. As the used market drops down to single digit inventory levels and you get past the U.S.-registered fleet to aircraft with less desirable pedigrees, and as used prices begin to rise in some cabin sizes, at some point, used aircraft buyers will take a more serious look at buying new aircraft," he explained. "We see more new aircraft sales activity in the future, and that will be great for the OEMs and the market as a whole. The economy is up, and the used inventory is down. It all aligns itself to suggest new aircraft sales should pick up.”
According to Hayes, recent changes in the corporate tax law appear to have had minimal effect on the specific market so far. Instead, he said, the overall improved health of the macroeconomy seemed to be a more decisive factor in the immediate improved prospects for business aircraft.
“The 2018 tax law changes don’t seem to be having much of an impact on the market so far. If someone could use the [depreciation] tax benefits before, they can use them now. And if they couldn’t use them before, they can’t use them now. We have had a lot of discussions, and think there will be a lot of activity in the fourth quarter, driven by the requirements of bonus depreciation and the longer time it has taken this year to do the tax analysis, driven by the changes in the law, that accompanies the purchasing decision,” Hayes said.
He also doesn’t think that changes in the tax law that limit the deductibility of certain entertainment and personal use of business aircraft have made much of a dent in utilization. “It looks like flight activity for the year, based on the data I’ve seen, is up. I think our clients are doing a little more due diligence with regard to individual flight missions and use of aircraft," he noted. "But because the economy is doing so well and our clients are doing so well, utilization is up.”
More Loans, Fewer Leases
With regard to specific financing transactions, Hayes said PNC “is seeing more debt than lease transactions. We’re fortunate to have a product that no one else has—an asset-based, non-disclosure, limited-recourse product. That particular structure is very desired in the marketplace as it aligns itself perfectly with the small and midsize cabin airplane.”
This product has appeal because of the speed of closing and minimal customer disclosure requirements, he pointed out. “Our asset-based non-recourse product is the simplest type of debt financing available. The clients do not provide any financial information. There is no financial disclosure. They put down at least 20 percent on the airplane. We see them put 20 to 50 percent down typically. The level of down payment drives the level of personal or corporate guarantee.
“For example, if a client puts down 60 percent, generally there would be no disclosure and no guarantee. If a client wanted to finance 80 percent, there would be no disclosure and a limited guarantee. It’s a transaction that can close very quickly. We go through the 'get to know your customer' procedure, but it’s cash-down payment, credit rating, and clean overall background. Generally speaking, we can close in seven to 10 days, while traditional financing takes two to three weeks. Timing is one thing, simplicity is the second. It’s a fantastic product and about half of our business.”
PNC also offers synthetic and tax operating leases. “We have closed numerous lease transactions,” Hayes said. “But our limited-recourse loan still is the dominant product. The biggest competitor to that is cash.”