An aircraft appraisal is often required when financing an aircraft for several reasons. The appraisal provides an accurate and unbiased valuation of the aircraft. Lenders need to know the precise market value to determine the appropriate loan amount and ensure the collateral is sufficient to cover the loan. Lenders use the appraisal to establish the loan-to-value (LTV) ratio, which is the ratio of the loan amount to the appraised value of the aircraft. A precise appraisal helps in setting a realistic LTV ratio, reducing the lender’s risk.
The aircraft serves as collateral for the loan. An appraisal assesses the condition, maintenance history, and marketability of the aircraft, ensuring it is a viable asset to secure the loan. By understanding the true value and condition of the aircraft, lenders can better assess the risk involved in the loan. This helps in making informed lending decisions and setting appropriate terms and conditions.
Some jurisdictions and financial institutions have regulations requiring an appraisal for high-value assets like aircraft. Complying with these regulations is essential for both the lender and borrower. In the event of default, the lender may need to sell the aircraft to recover the loan amount. An accurate appraisal ensures that the aircraft’s resale value is known and can be quickly converted into cash if necessary.
An appraisal can also be useful for insurance purposes, ensuring the aircraft is adequately insured for its true value, protecting both the lender’s and borrower’s interests.
Overall, an aircraft appraisal provides a comprehensive evaluation that helps in making sound financial decisions and ensures the interests of all parties involved are protected.
