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hen Orville and Wilbur Wright firsttook off at Kitty Hawk, 1st Source Bankhad already amassed 40 years ofhistory having been founded in 1863.

Today, 156 years after its founding, 1st Sourceremains a strong, stable, local and personal financialinstitution for its clients.

The bank's service region covers Indiana'snorthern half and Michigan's southwest area, and 1stSource lays claim to being the largest locally-controlled financial institution headquartered in thatarea. However, 1st Source also competes nationally,vying for business in several specialized financingservices areas.

Indeed, within a specialty finance unit (serving themarket for construction equipment, buses, funeralcars, rental car fleet financing and trucking) the bankdedicates an entire division as well as fundingsolutions for business and private jets, turbopropsand turbine helicopters.

Heading up the Aviation Finance Division for thepast 28 years is Greg Holst. A 40-year veteran of theBusiness Aviation industry, Holst's employmenthistory includes management roles with CessnaFinance Corporation, Chase Manhattan Leasing,Textron Financial Corporation and Xerox FinancialServices.

Holst, a pilot, has developed specialist knowledge

A Banker’s View ofAircraft Financing

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Different banks approach aircraft financing differently. Howdoes 1st Source Bank see the aircraft financing markettoday, and how does it seek to meet the needs of today’saircraft buyers? Dave Higdon caught up with Greg Holst…

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of international aviation lending and leasing, lettersof credit, remote capture business checking anddeposit management, wealth management andinterest-rate swap contracts.

1st Source has a dedicated team of 16 businessaircraft banking professionals who serve the US,Mexico, Brazil and Canada. Their goal is to provideclients with straight talk and sound advice that bringsefficiency and client-focused solutions to the bank'srelationships.

The key to the success of 1st Source Bank,whether its aviation business or its overall operation,is its aim to provide customer focus on a par with itsregional-banking roots.

“We’re focused on service,” Holst explains. “Youdon't have to be a multi-millionaire to get ourattention. We try to keep our clients' best interest inmind with straight talk, sound advice, great serviceand just being there. Knowing you can call on agood person, during or after office hours, and getaction toward your goal has always been a key to ouroperating.”

Aviation Financing: Nothing Like aDecade AgoAviation is a big component of 1st Source Bank'sbusiness. “1st Source has been servicing theBusiness Aviation segment continuously for morethan 33 years,” Holst explains. “And aircraftfinancing has consistently been a double-digitcomponent of the bank’s lending business.

“We have a big commitment to the BusinessAviation community,” he continued, “and that'sbecause of good, consistent management of ourportfolio and our dedication to clients.”

According to Holst, 1st Source Bank's aviationpractice goes beyond what's typical of a regionalbank. “We're more engaged and involved inBusiness Aviation than most other banks our size,and some larger banks,” he elaborates, noting that1st Source didn't suffer most of the problems andpanic of the Great Recession (2008/09) that sentmany a lender, owner and operator for the BusinessAviation exit doors.

Commenting on the current market, Holst notes“[This year] I've seen a flattening in the market. Butit's still stable. One of our segments is floor-planningfor dealers, which is aircraft held for re-sale, andthat's down right now. The availability of good pre-owned aircraft is very limited.”

Not surprisingly, the many concentrated areas ofinstability have some would-be operators on hold –but not running for the exits like they did a decadeago. “People are waiting to see the direction ofglobal trade concerns and the 2020 election. I thinkthat's going to make markets relatively stable ordecline modestly,” Holst says.

But Holst doesn't see the current state of themarket being anywhere near as dire as a decadeago. That's not saying times won't get tighter beforethey improve. “I think we're ultimately going to seesome softening in the market until this stuff getssettled out,” Holst projects.

Dave Higdon is a highly respected aviationjournalist who has covered all aspects of

civil aviation over the past 36 years. Based inWichita, he has several thousand flight hours,

and has piloted pretty much everything from foot-launched wings to combat jets.

Contact him via Dave@avbuyer.com

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“We've had a few clients sell their aircraft whilevalues are good,” he adds, “and some are holdingoff on replacing their aircraft – for now.”

Those previous owners haven't abandoned themany tangible and intangible benefits of traveling bybusiness aircraft. Instead of bailing on BusinessAviation altogether, they’re employing alternativeflying options, including fractional ownershipprograms, membership programs, and, of course,the evergreen aircraft charter and lease.

And Today's Aircraft Financing Market…?“In times like these, a lot of lenders want to take anapproach that's ‘tightening’”, Holst notes of today’smarket for aircraft financing. “We don't spend asmuch time tightening – or loosening – credit. Wefocus on doing business with people who havesound credit, structuring the loan so that the clientmaintains a significant equity investment in theaircraft.”

Much of 1st Source Bank’s aviation practice iscolored by Holst's long career in aviation finance. “Myexperience is that when people have a badexperience owning an aircraft, when it comes time tosell or trade they don't come back. They may charter,perhaps buy a fractional share, but they don't buyagain.”

Interest rates have been coming down throughoutthe year, Holst notes, because most lenders key offthe swap rates. “Most owners use the airplane forbetween three and five years. A small percentagewant a 20-year loan, but more typical are loans forfive to 10 years.

“The marketplace is seeing interest rates that arein the 4% range and even into the 3% range, butthere are many variables including how the aircraft isgoing to be used and where it will operate.”

While some fear that today's market seems tofollow the same trends that transpired in 2007-2008,Holst notes some large differences. “What's different

today is we don't have the over-inflation of thebusiness aircraft market like we had in 2008.

“One thing that hurts us in this current cycle isthat the international market can't boostperformance like we had post 2008,” Holst cautions.“We had the bubble in the housing market, thesubprime-mortgage problem, but internationalmarkets helped us out by sustaining sales. Thosecircumstances don't exist today.”

1st Source's Key to Success? FocusUltimately, 1st Source avoids trying to be a be-all-and-finance-all option, instead focusing on specifictypes of business aircraft. According to Holst, “Wefocus primarily on aircraft used for executivetransport and revenue generation. When you look atwhat we do, most of our business is concentrated onLight to Mid-Size jets, Turboprops and Light to Mid-Size helicopters.”

Beyond those parameters, 1st Source tries to stayin its lane for its Business Aviation lending. “Wefinance both new and used aircraft and try to staywithin 20 years in aircraft age.”

During its 156 years in business, 1st Source Bankhas never been liquidated or been acquired. “I thinkthat feeds into the leadership and strategy,” Holstoffers. “That's a big reason why I joined this bank 28years ago. I'd been with some bigger names andwhen things were good it was great, then we'd gothrough a downturn and ultimately exit the business.I decided I didn't want to live that way.”

When he first talked to 1st Source, Holst wasimpressed with the long view and desire to helpclients see that picture. “I liked the long view and thecommitment to the community the bank serves.”

If what's past is prologue, 1st Source customersshould expect more of the same for decades to come.More information from https://www.1stsource.com/business/specialty-financing/specialty-financing/aircraft-and-helicopter �

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