In their search for a source of profitable loan growth, some credit unions need to look no further than the skies above. Largely ignored by credit unions due to their relative complexity, recreational aircraft loans present distinct advantages over more traditional loan products. Unlike automobiles and other types of collateral, aircraft appreciate in value over time. In addition, credit unions can usually assess higher interest rates to aircraft loans than more standard types of loans because of the limited pool of lenders.
Loan products that are offered in the general aviation market are as varied as any collection of consumer loan, home mortgage or home equity line of credit products. Financing terms of up to 20 years are common, with three, five and seven-year adjustable rate pricing structures available. Down payment requirements may be as low as 10 percent, and loans provided by captive finance companies are the most aggressively priced, with fixed rates as low as 5.5 percent and variable rates of Prime plus 0.5 percent.
Representing nearly 35 percent of U.S. general aviation hours annually, personal flying is particularly popular among military personnel and employees of organizations with airline industry affiliations. Reflective of this trend, most credit unions with well-established aircraft lending programs have either current or former ties to these sectors.
Despite the relatively high concentration of recreational aircraft ownership in specific segments, even small aircraft lending programs can prove valuable to credit unions that adopt thorough underwriting procedures, such as those utilized by BECU ($4.5B, Seattle, WA). Beyond their replicability, BECU's underwriting procedures effectively reduce the incidence of loans defaulting and ensure the overall profitability of the credit union's aircraft loan portfolio. Echoing this sentiment is Phil Hart, President of Tulsa Federal Employees Credit Union ($368M, Tulsa, OK), who contends that a lack of understanding of the relatively mundane mechanics involved with making aircraft loans is the primary barrier to the successful establishment of aircraft lending programs by credit unions.