Like most who specialize in the financial side of the aviation business, a high percentage of my engagements since 4Q2008 have been with lenders who are trying to get out of the trap. It has been a bloodbath for many, as evidenced by a very nice G-2B that was foreclosed by an Oklahoma bank with $2.5 mil owing and an appraised value of $600,000 that was roughly equivalent to unused engine time. The real estate guy who owned the plane was TU and the bank's deficiency judgement of $1.9 mil plus interest, penalties, acceleration and other loan provisions was essentially worthless. When asked if I could help, I had no good answers. The bank eventually sold the airplane for $475,000.
Within the last six months the president of one of the largest aircraft lending banks in Texas told me that the bank's entire aircraft portfolio was under water with respect to loan to value ratio, and that they "had to do something different" if they wanted to continue in that business. The bank is located in one of the wealthiest areas of Dallas, and many customers are airplane owners or potential buyers. The bank values the relationships but the regulators are holding their feet to the fire. I know that some of the loans have been moved to other lenders, but don't know the details.
Lenders have obviously changed their underwriting and collateral requirements since the crash, and are considering numerous alternatives in addition to the larger down payment and increased credit-worthiness of borrowers that has been initiated thus far.
Many changes to loan terms have and are been considered, including the requirement that borrowers periodically escrow engine reserves (with the bank or through an engine life program) and other onerous measures that (IMO) would pretty much finish off the wounded-duck used GA market.
As a result of this increased focus, I developed a 1.5-day seminar program for loan officers and board members. A key element of the program is to help them to better understand the ongoing financial ramifications of aircraft ownership, as well as the limitations of an appraisal at the time of purchase.
One of the tools for these discussions is the preparation of a realistic budget for estimated ownership and operation of the aircraft over an assumed ownership period (we use six years to be consistent with tax depreciation) as well as a range of potential resale values at the end of the ownership period. This full ownership-cycle analysis addresses some of the most-frequent traps for both the owner and the bank (fast depreciation vs. slow amortization) as well as some of the OWT's (that owners can make money from 135 leasebacks).
The program has been well-received, and having now completed several of the seminars, I have determined that I don't want to travel all over the country doing them, especially during the good months for flying and golf.
But having now seen some of what's happening behind the curtain, I will be interested to see how the banks react to better protect themselves in the future. I think the best we can hope for is no further change in lending requirements, and the worst is much much worse.
But one should go into this with an informed understanding of what the true cost is going to be. The total costs of other owners are probably going to be a good representation of what you can expect your total costs to be, unless you have something special in your court such as being your own A&P/IA, free hangar, etc. If you do have those, then your numbers probably will be different than a typical owner's.