Bob’s editorial as featured in Aviation Digest’s June issue.
As it has been reported all over the media, the US economy is starting to gain steam under our new president. Most of the key indexes are showing movement in the right direction, including unemployment, labor participation rate, housing prices, consumer and business confidence. This is certainly great to hear after almost a decade of bad economic news.
The unemployment rate dropped to 4.4% in April as the Bureau of Labor Statistics reported an increase of 211,000 in payroll employment. Jobless claims are at a 17-year low. The Labor Participation Rate seems to have bottomed out in September of 2015, and hopefully as the economy heals, more people will enter the work force and be able to find gainful employment. Consumer and Business confidence levels have soared since the election. All this is very welcome news!
On the political side, the House has passed a replacement for the structurally unstable and expensive ACA. If the plan, once reconciled against a promised Senate bill, can rein in costs and make healthcare and insurance affordable, the economy and the federal budget will correspondingly respond. According to a recent LA Times story, President Trump has promised to overhaul the current tax code and has started the long roll back of suffocating and over reaching regulations in a number of industries.
For lenders, these economic indicators are very encouraging to the potential of what the fiscal year could bring to the table. Many, if not most lenders I have spoken to are confident and that confidence is not necessarily born of all this good news, but from the actual increase in activity. Across the aircraft finance industry, most of the people I have spoken to are adjusting to the increase in activity. For our part, Dorr Aviation has had a spectacular first quarter, nearly doubling last year’s first quarter production. As I had stated in a previous offering, all the good news will inevitably lead to an increase in finance rates.
The rates we are offering at Dorr remain as competitive and aggressive as I have seen in 30 years of aircraft financing. However, the inescapable is starting to press the market. At this point the rate pressure has been very small for the most desirable clients and aircraft. New and newer Bonanza’s, SR22’s, 206’s, et. al. still demand rates in the mid to upper 4’s for terms to 20 years. The market that seems to be experiencing the most upward pressure are the aircraft that were manufactured more than 30 years ago. These rates have seemed to increase anywhere from 25 basis points to 75 basis points.
Be sure to keep these rates in perspective! At the height of the economic expansion in 2007, the average retail loan rate was 6.883%. Today, it is 4.776%. It is clear that rates are still at historically low levels and it may be time to take advantage of these rates before prices start to respond in similar ways to all of this great economic news.