Thursday, July 08, 2010

More private planes are being repossessed
By Charisse Jones, USA TODAY

The recession isn't just stripping the middle class of their prize possessions. The wealthy are losing out, too.

In the past few weeks, Ken Cage, who specializes in repossessing private planes, says he's recovered two jets worth a combined $7.1 million.

And while business has ebbed a bit compared with last year, it remains four times what Cage saw before the recession.

"I think we picked up 15 (planes) that were $1 million or more, including one $20 million jet," says Cage, president of International Recovery & Remarketing Group in Orlando, reflecting on the past 12 months. "We'd never picked up anything close to that before."

It shouldn't come as a surprise that the nation's steepest economic downturn since the Great Depression has also struck the rich. One indicator has been the number of private planes repossessed from owners who can no longer pay the notes or who are buried under liens stemming from unpaid maintenance and fuel bills.

"The small, single-engine Cessnas and Pipers are being repossessed all the way on up to 747s," says Terence Haglund, founder of the Aviation Law Center in Williamsburg, Va., who represents many lenders. "It's definitely recession-related, and it's been increasing for the last couple of years."

He doesn't see the repossessions dipping significantly any time soon. "I think it'll continue," he says. "It has not slowed down yet."

The beleaguered owners include businesses that have acquired corporate jets, affluent professionals who may choose to cruise the skies in small Pipers, and the fabulously wealthy who once had their pick among all of the above.

"A lot of what we're seeing is ... their aircraft are no longer worth what they were when they paid for them (and), they can no longer afford to operate and maintain them," Haglund says. Some owners, he says, also get into trouble when they lease their planes to charter companies that then fail to pay what they owe for fuel, airport access and other services. That leads to liens on the aircraft.

"Banks can repossess the airplanes because some third party didn't pay the bills," he says. "The owner is stuck with either paying the bills someone else incurred or letting the bank take it back. It's a bad situation."

Cage says he repossessed roughly 350 planes in 2009 and a little more than 100 so far this year. Business Aircraft Sales' Ken Hill, who specializes in general aviation aircraft and whose recent recoveries include a Gulfstream IV, says he worked on nearly 100 cases last year. He's wrapped 45 cases so far in 2010 and has 22 more that are open.

It's impossible to determine how many private planes are at risk of being repossessed, how many owners are delinquent on payments and what effect that's had on values.

But Brian Foley, a general aviation management adviser who follows the market closely, says that of all the business jets flying a year ago this month, 18% were for sale. That's a "phenomenal" percentage, he says, because the norm is 12%.

Currently, 15% are for sale. Repossessed aircraft have been part of the glut, some observers say.

"Part of that bubble ... was both people selling their aircraft, as well as some repossessions," says Ron Gunnarson, vice president of marketing and communications for general aviation aircraft manufacturer Hawker Beechcraft in Wichita.

Generally busier

Some say the tide of repossessions of business aircraft has begun to turn.

Foley says defaults on business jets are traditionally very low, and the rise in repossessions happened a year ago.

"It did go up by a very low level, but it's not anything like home foreclosures," he says. However, for those who specialize in that area, "I'm sure those folks are busier. The repossession business for airplanes probably isn't a very active segment, so I'm sure they've seen an increase."

In the meantime, sales and production of new business aircraft remain down from 2008, a peak year, with a meaningful rebound not expected until 2011 at the earliest, some manufacturers say.

"We really don't see an uptick in significant activity until late 2011, and that's across the board from single-engine pistons, as well as business jets," says Doug Oliver, spokesman for aircraft maker Cessna.

Cessna will deliver roughly 225 business jets in 2010 compared with 489 in 2008. The company had expected to deliver more than 500 business aircraft last year, but because of the recession, delivered 289, Oliver says. "We had a considerable backlog of orders where people had put down non-refundable deposits, and because of the downturn, they ended up just walking away," he says.

Still, the daily use of business jets is on the rise, the charter business is improving, and the number of used aircraft for sale is starting to decline. "We're cautiously optimistic that we're ... here with the worst behind us," says Gunnarson of Hawker Beechcraft.

Higher-end repos

For those who chase aircraft dogged by delinquent payments, it's not just the number that's stood out, but their value.

"In 2007, we picked up a lot of single-engine planes worth $20,000 to $40,000," Cage says. "This year, the average value of the aircraft we've picked up was $400,000."

Cage, who also pursues other high-price items, such as yachts, says that it appears to be the collapse of the real estate bubble that's led many private owners to lose their planes.

"I would say 70% of the people we repossess from ... are in the real estate market," he says, noting that they range from salespeople to those in construction and related businesses. "A lot of people made good money in '04 and '05 and '06. By '08 or '09, things just collapsed around them. It was such a deep hit so quickly after a high point that it caught a lot of people."

But he and Hill say the pace of repossessions has slowed, in part because lenders have become more lenient.

Lenders sometimes wait up to six months before going after the aircraft, often because they don't want to be stuck with a depreciated asset that they now have to resell.

"When we're finally in touch with the aircraft owner, oftentimes the lender will still try to work out a deal with the owner ... because the lenders don't necessarily want the aircraft back," Haglund says. "In too many cases, the aircraft are worth less now than they were when they were financed — or worth less than what's owed on the debt. It's exactly like houses, except we're talking (values of) anywhere from $50,000 to $50 million."

Not a toy, but a tool

General aviation aircraft is the focus of Hill's business, and he balks at the idea that his trade is similar to that of those who reclaim cars or other items, noting that private aircraft play a key function in the nation's economy.

"General aviation is a great part of the economic development of this country," he says. "There's always the person who thinks airplanes are a toy. They're not a toy. (They're) a tool."

Hill says he's spending more time trying to help people figure out a way to keep their planes and maintain them.

"I do see a little bit of improvement in people being able to do that," Hill says. "I see more planes being saved, and more loans being kept current without going into total foreclosure."

But dozens of owners still can't pull out of their financial free fall, and some would rather hide the aircraft than see them seized. They'll stash them in hangars that could be halfway across the globe.

Tracking down an errant plane often requires flight-tracking websites, a network of contacts, a good pilot and plain, old-fashioned shoe leather.

"I've got four or five right now that I'm on the hunt for, but I'll find them," Hill says. "I have two outside the country, and we're tracking them and watching them. Sometimes you have to be patient, and you have to wait until it surfaces."

Rarely do defaulting owners know he's coming. "It's kind of like (the) grim reaper," says Hill, who's come to be known by that moniker. "You don't know he's there until he knocks on your door."

Hill says he's gone 35 to 40 days at a clip on many trips, and he's reclaimed planes from as far as Germany.

A licensed pilot with 12,000 hours under his belt, Hill's the one who usually flies the planes back. "I could fly anything that I repossess," he says.

Finding the aircraft is half the battle. The plane needs to meet certain criteria, such as having logbooks documenting that it's received required annual inspections and maintenance checks before it can be flown. A special ferry permit, allowing it to travel from one location to another, could be obtained if other records aren't available, but only after a mechanic deems the plane airworthy.

"Most of the time the batteries are dead, and things are going wrong," Cage says. "Planes are best when they're run frequently, and if folks are running out of money, they're not using the airplane. They're not paying for maintenance, so that's the biggest issue." Sometimes, he says, getting the plane in shape and back in the air can take months.

Some owners will resort to violence to hold onto their planes.

For cases that look particularly tough, Cage, a licensed private investigator, takes along Randy Craft, a former WWE wrestler, also known as Rockin' Randy.

Once, Cage says, an irate owner hit Craft with a car — though he was only driving at a few miles per hour. He and Craft have also been chased with shovels.

But Cage says that even the rich deserve some sympathy.

"I think that ego is still the biggest part of it, because they were really wealthy a couple years ago, and now the one thing they thought would never happen is staring them right in the face," he says. "A big part of the job is making sure that we treat these people properly. Allow them their dignity. Allow them their pride. Don't try to take that away from them

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