Seller Financing: Growing out of Necessity— Originally published in
BusinessAir Magazine, October 2012, Volume 22, No. 10.
In 2012, there appears to be a growing trend toward Sellers providing direct financing to Buyers for the sale of Seller aircraft. This trend has several causes. First, after several years of a Buyer’s market, some Sellers are anxious to entice Buyers to choose their aircraft over any other aircraft on the market in the same category and Seller financing is one way to stand out from the crowd. Additionally, after having watched a feeble market for several years, some Sellers are now prepared to sell at a price and under conditions they would not have considered several years ago simply in order to eliminate the expense of owning the aircraft.
While commercial Lenders have become more active than they were in 2009, they are only willing to finance the right buyer and the right aircraft. Many aircraft currently on the market are older than what most Lenders are willing to finance. Furthermore, almost all Lenders require a significant down payment when financing an aircraft. Sellers can be
much more flexible on all financing terms, including the amount they are willing to accept as a down payment. Even without any down payment, the Seller will have the immediate benefit of no longer having to cover the fixed costs for the aircraft.
When a Seller provides financing for the Buyer of their aircraft, the Seller must be certain they are adequately protecting themselves. Financing an aircraft can be complex and involves a number of documents that need to be filed or registered in various locations. If any of the steps necessary to perfect the Seller’s interest in the loan are missed, in the event of a default it may be very difficult to repossess the aircraft. UCC, FAA and International Registry filings can take time and money, but they are all a necessity in the case of Seller financing. Additionally, if the Buyer is going to be using the aircraft outside the United States, the Seller needs to understand the international implications of a default when the aircraft is outside the country. While there are a growing number of signatories to the Cape Town Treaty, which was intended, among other things, to protect Lenders who finance mobile goods like aircraft, the system is not fully tested and has not been adopted in all countries. Further, even countries which have adopted the treaty may have different views on property law and different legal systems that make repossession difficult in the case of a default.
As the aircraft Buyer’s market continues, Sellers need to be creative and find ways to sell aircraft no longer needed or wanted. Seller financing is a great option to help aid in the sale of an aircraft. However, it is imperative that adequate protections are in place in the event the Buyer stops making payments.
Senior Transactional Counsel
Aerlex Law Group
Santa Monica, California