General Aviation Remains Healthy Despite Mandated Shutdown
Many of my clients have asked me how the market has responded to the global pandemic and specifically how the aircraft finance market has been impacted. From the first instance of hearing the rumors, miss-information and the eventual truth of the emerging virus in Hunan, questions of the extent of the potential spread of this highly potent contagion whispered in the minds of many. As the news of the covid-19 virus’s devastating impact on the people of Hunan and seeing the draconian efforts of a tyrannical authoritarian government of China to stop the spread of both the disease and information pertaining to it, many in government and in business took note. As we have seen, efforts to contain the ChiCom Flu have proved to be largely unsuccessful as the revenging impact crept across Europe, the Untied States and eventually the entire world.
The limited but growing knowledge of the virus has lead governments across the globe to shut down their economies and issue “shelter in place” orders to help stem the spread and “flatten the curve”. Questions are being raised that no one previously could have imagined. Is your job “essential”? Am I putting my family at risk by trying to feed them? As day to day commerce ceases and supply chains are compromised, the fear of the virus is giving way to the stress and fear of losing the ability to provide for our families.
As the mitigation efforts have been successful in “flattening the curve” and the infection rates appear to have peaked, the pressure on governments to reopen the economy grow. Citizens through out our country are eager to get back to work and reestablish their lives as best they can. This pent-up demand should allow the economy in the coming months to gradually grow in momentum and intensity and by 4th quarter many are predicting robust growth.
Throughout the last three and a half months, Dorr Aviation has been surprisingly busy. As it became clear that our state government would require us to either shut down or work remotely, our concern was focused on keeping our families healthy and felt that the interruption to business would be short lived. As we established our routines of working remotely, we anticipated a slowdown, “the phones” would stop ringing and loan production would suffer. Much to our profound surprise, we have discovered the opposite to be true. We found that by working remotely we were missing calls and inconveniencing our clients and potential clients as well as missing the opportunity to speak to the real driver of our aviation market place.
A healthy percentage of our business continues to be generated by savvy aircraft owners who are eager to take advantage of the fed’s recent moves at holding borrowing costs down to help stimulate the economy during this self-induced slowdown by refinancing their current aircraft mortgages. Owners can save significantly by lowering their rate anywhere from a half to two percentage points in the current market. These current offerings are on top of already outstanding rates. Prior to this current crisis, rates were as low or lower than I have ever seen them in my 31 years of making aircraft loans at Dorr.
As the continued opportunity created by the lower rates was certainly expected, we are pleasantly surprised by the high activity of aircraft purchases we are participating in during this period. Purchase money has been borrowed by our clients on the whole range of aircraft, from Skyhawks to Bonanzas from 310’s to 421’s from Conquests to King Airs from Citations to Phenoms. The biggest issues we are finding is that our clients are sometimes having difficulty finding mechanics and facilities to perform prebuy inspections. Since March 1st, a full 87% of our transaction have been purchase money loans. This is clearly a sign of the optimism that so many Americans have about their future, our economy and the resilience of the American spirit.
This optimism has been shared and promoted by our partner underwriters and lending institutions. When so much of the lending business is either government supported (PPP, et al) or the refinancing of current business, our partners are encouraged by the steady stream of “new business”. Many lenders have also been aggressive in support of their current portfolios and are cognizant of the potential impact of the shut down may have on individual customers. These institutions have been bold in offering rate modifications to clients in good standing to easily lower current contract rates and many have even offered temporary forbearance of payments from 60 to 180 days. Surprisingly, few have taken the lenders up on payment forbearance.
When this crisis began, the unknowns were great. As our government started to respond to the threat to the health of their citizens, many were concerned that the “cure” would be worse than the disease. So far, the cure has been quite painful, but we have flattened the “curve” and it appears that the worst of the disease is behind us. As the economy slowly re-opens, we are anticipating growth that reflects the pent-up demand that is an outgrowth of the artificial recession created by the mandated shutdown. This anticipated growth will make fourth quarter and next year a great opportunity to restore the millions of jobs lost because of the Hunan Flu. Although the information that I have presented is anecdotal (as it is only of reflection of what I have witness in my company), the optimism it reflects should help carry our economy forward to new heights. From my observations, aircraft lending and GA is quite healthy considering the what might have been.