Financing Logjam Hits Used Market

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A financial Catch-22 is at the root of the market logjam stalling new business jet sales, according to analyst Brian Foley. Manufacturers keep saying they won't start selling healthy numbers of new aircraft until the glut of used planes is cleared. And while there are plenty of customers anxious to snap up the many bargains on the used market, those low prices are at least partly responsible for their not selling. Foley says that while banks are starting to lend again, they are being a lot more careful and don't like lending for items that are undervalued. "Residual values have plummeted, so today's loans are based more on the borrower's balance sheet and less on the [repossessed] asset value of the aircraft, although that continues to play some role," Foley said.

Another factor deterring buyers is that banks are no longer approving loans that include extra money for upgrades on used aircraft. In fact, they're demanding up to 20 percent down, meaning the prospective buyer might have to come up with a third or more of the total cost of a used aircraft if, as is common, he wants to upgrade the avionics or redo the interior. Only those with impeccable credit need apply and they should be looking for newer planes. Some institutions won't look at lending on aircraft older than 10 years, he said.