Bank Airlines

[PA39]

:\ Westpac is working toward being one of the biggest aircraft owners in the country !! the # of repos is growing alarmingly!

[PLovett]

Says a lot about the state of the GA industry. :sad:

[Stationair8]

Even a bigger worry if you are a Westpac shareholder!!!!!

Book value verses true value of that clapped out GA 30 year old airframe.

[Jabawocky]

its not so much the book value....when they go to auction, there are so few interested buyers....if you are lucky you will get a bid, look at slattery's last effort. Liberty's by the half dozen, and you could buy one with only 500ish hours for 1/3 of what a new one will cost you today.

Some big losses there.

But never fear good old Kevvy told us all we were in great shape in Oz, I wonder if the woodpecker realises what she has taken over........

[Jetjr]

Going to make getting finance hard, I know at least one lender has refused ANY aviation related finance from now on
I guess Westpac would follow this lead

Insurers are also pulling out

[bentleg]

It doesnt follow that Westpac ownership means a repossession, although it can be. It could also be a leasing transaction.

[tail wheel]

In a repossession of a financed aircraft (not leased aircraft) the financier does not assume ownership. He is merely a custodian with statutory obligations in respect to disposal of the aircraft.

If a financier agrees to finance or lease a new or used aircraft without adequate equity, collateral or security they deserve the losses that inevitably result.

[The_Pharoah]

Quote "If a financier agrees to finance or lease a new or used aircraft without adequate equity, collateral or security they deserve the losses that inevitably result." (bold added)

what a statement. :D if every bank thought like you, almost NOONE would get a loan. Ever heard of risk/reward? Simply its like this...high risk / high reward, low risk / low reward. Thats why home loans are 'low' risk and therefore the int banks earn is lower...coz in theory banks will always be able to recover their investment. However, when Mr dodgy fronts up with a proposal to lease 5 clapped out old C172s, what int rate do you think they give him (sufficient to cover their risk)? Thats why personal loans attract much higher int rates than secured loans etc etc. (and loan officers get nice bonuses which are theoretically linked to bad debts, not always the case though).

The bank has to accept an element of risk in the transaction..every transaction and charge higher interest rates for it. Otherwise, anyone going for a loan (even a small one) would probably require:

- 40% deposit
- personal guarantee secured by a term deposit
- 25% interest rate
- yada yada yada

Make sense?

*edit* - just re-read - no offense intended by the tone above..just how I wrote it. :ok:

[mcgrath50]

Tailie does have a point though, 30 - 40 years ago, the credit we are able to obtain today was unheard of. If that's a good thing or not is able to be debated!

[tail wheel]

Sorry Pharoah, but I totally disgree and I am in a position to quote professional opinion.

Ever heard of risk/reward?

No, but I am very familiar with financial risk management in a commercial enterprise.

Forget a comparison to real estate; historically real property has always appreciated over a longer term and, assuming an astute buyer purchases at fair market value, any short term depreciation in value will be minimal and reverse in the longer term.

The risk to a financier is minimal.

A 30 year old GA aircraft value is predominently based upon the available component hours and a residual value on the airframe. There is a fair chance that up to 50% of the purchase price of a 30 year old GA aircraft is in fact, the available component hours - engines, props etc. The residual value (of the airframe) is what the airframe, avionics, core engines and props etc are worth when those available hours are consumed, usually nanoseconds before it is reppossessed. Not much, as was demonstrated at a recent aircraft auction.

The risk to a financier is very significant and an astute financier will carefully assess his exposure and ask a significantly higher deposit, charging higher risk interest rates - or hold external security i.e. unencumbered property.

I do not see a minimum 40% deposit on financing a 30 year old GA aircraft as being unreasonable? If it were my money (or my superannuation) I'd be asking a 100% deposit............

An astute Government should be encouraging acquisition of locally manufactured equipment assets, granting significant investment incentive and if necessary, guarantees and accelerated depreciation. That is the only way high capital cost new aircraft may compete on price with 30 plus year old GA aircraft, which are long past their use by date.

Why should it be simple and easy for an undercapitalised, tyre kicking dreamer with the business accumen and IQ of a gold fish, to enter the commercial aviation (or taxi, or bus) industry, with predatory, below cost product pricing and the financier (and thus the superannuation of many Australians) carrying the risk? It is those same undercapitalised, tyre kicking dreamers who also are unable to pay a fair and equitable wage to their employees and meet their obligation to creditors in a timely manner.

I stand by my previous comments.

There are threads on PPRuNe from time to time, seeking advice on buying an aircraft, usually "to build hours". :yuk: In every case my professional advice would be the same: Take a cold shower, two BEX powders and a long lie down. If that doesn't cure the urge, go burn a fist full of $100 bills and if you find that a pleasurable experience, buy a 30 plus year old GA aircraft!

There are only two pleasurable days in old aircraft ownership - the day you buy and the day you sell.

Having said that, I also know of some very nice, well maintained 30 plus year old private aircraft, owned by fastidious, careful and astute owners who can afford not to count the cost. They are generally not the cross hired aircraft you find on line at flying schools and small charter companies.

[CharlieLimaX-Ray]

Something about if it Flies, Floats or is Female, rent it.

Love the "smart businessman" who buys an aeroplane as an investment, then puts it on line at the local flying club for a cheap rate so that he can write it off on his tax and also get a bit of cheap flying for himself.

[compressor stall]

Repossessor advises banks against reclaiming aircraft
By: Mark Huber

Aviation International News >> July 2010
Business Aviation


The nation’s foremost aircraft repossessor is counseling his bank and leasing company clients not to take back delinquent aircraft. “We are telling banks not to repo,” said Nick Popovich, president of Sage-Popovich, the global aircraft repossession, aviation parts and services company. Popovich said the declining value of used aircraft and the flat resale market make this a bad time to take back airplanes and that the move would only compound banks’ well publicized problems.
Popovich has been in the repossession business since 1979 and his firm has repossessed more than 1,400 aircraft, but now, he said, is generally not the time.

“The aircraft market is distressed and everyone knows it,” Popovich said. “I’ve seen it with my own airplanes. My Challenger went from a $9 million airplane to a $3 million airplane in eight months.” Popovich painted a hypothetical scenario for a bank to illustrate his point. “If you are a bank [with] a $3 million note on an airplane that is now worth only $1 million, you have a $2 million deficiency, and now you have to insure it, store it and worry about maintaining it.”

Banks have another problem if they take back an aircraft right now and resell it at a distressed price: they are forced to write down the value of the assets of all similar aircraft in their loan portfolio–a huge hit to their bottom line at a time they need it least.

They can also count on the owner suing them. “The banks have to be able to prove that they have done everything commercially reasonable to get the highest value for their aircraft” before they go after the owner to make up the gap between the value of the loan and the price obtained for the aircraft. Because of that, many repossessed aircraft have lengthy disposal times. Popovich currently has 30 repossessed aircraft in storage at his facility at Gary, Ind., and said the typical time to process, document, repair, market and resell an aircraft spans any period from 30 days to two years. He had a Boeing 747 in inventory for six years.

In the current environment, Popovich said, “More often than not the bank ends up bidding the debt and buying the airplane back because no one bids on it.”

Protecting the Investment

Popovich attributes much of the financing problem to market conditions, but he added that some of it was caused by the banks’ own bad lending practices. “There were banks that were making aircraft loans without first inspecting the airplanes. So when we got there to repossess, we would just find some parts or even [discover] that the airplane had been destroyed years ago.”

“We had a lot of banks that were buried in airplanes,” he said. “Some of the banks are in such trouble they just can’t comprehend it. I’ve got one bank with a $2 billion problem and it just doesn’t know what to do.”

Rather than repossessing, Popovich is advising banks “to go out and inspect the airplane. Is it current on its maintenance and reserve program such as JSSI or MSP? Is it insured? In those cases, work something out with the guy. But in cases where that is not being done, the banks have no choice” and must repossess to protect the value of the asset, Popovich said.

Popovich said he empathizes with the plight of some distressed owners who have fallen victim to declining market values. “Ninety-nine percent of these people got in trouble because the value of the airplane dropped and the bank said, ‘Hey, the value of your $4 million airplane just dropped to $3 million and you need to come up with a million bucks.’ How many people can come up with $1 million cash? It is no fault of their own. They bought the airplane in good faith and are still making payments.”

Popovich sees the current state of affairs as temporary and predicts a market rebound by 2012, at which time, he said, there might actually be a shortage of corporate aircraft.

Meanwhile, he thinks most owners will hang onto their airplanes. “There are those cases when we get a call from a lender who has just had it with the borrower and he says, ‘I want you there now.’ In those cases, we can have a team on the way in as little as two hours. About 20 to 25 percent of our repossession cases are like that,” he said.

However, for now, Popovich counsels aircraft owners to work with their banks. “Banks want to know that the airplane is properly protected and insured. They might not want you to fly the airplane or [they might] limit how you use it until you get current, but nine times out of ten they are going to work with you,” he said.
“Banks don’t want to repossess the airplane and I do not want to repossess the airplane.”

[AirSic]

Where are these auctions advertised?

A search on google for reposessed aircraft ends up with some dodgy looking advertising from the US.

Is there a dedicated website for these things? Where are the aircraft housed prior to auction?

Thanks in advance

[Tinstaafl]

They can be stored anywhere. Sometimes at some quiet airport with space & minimal - if any - fees. Often they end up at the last maintenance place, grounded by the maintenance mob with a mechanic's lien waiting for the owner to pay for maintenance done, and the bank finally steps in. Then the bank finds they have an aircraft with lots of deferred maintenance, timex parts and sometimes missing parts/equipment 'borrowed' by the former operator 'temporarily' to keep something else flying to keep a cash flow going.

The maintenance mob I use for an aircraft I manage has one sitting there. They've been instructed not to release the aircraft and the bank is paying for the storage.

[golow]

Money is hard to get, that is why car sales are at a record levels in June. The bank won’t lend you $25000 for a personal loan but a car loan is easy to get so you sell your car and use the money and get a car loan, easy. From a car sales mate. The same would go for aircraft sales too I would think.

[PA39]

:sad: If you think its bad in Oz.....the yanks are tenfold on us. Owners handing some great aircraft back to the banks after failing to attract a sale at a giveaway price.

Tailwheel: I think you'll find most of those repos, if not all, are covered by a chattel mortgage.