Financing an Aircraft Engine Upgrade? Industry’s Top Tips

There can be significant benefits to an engine upgrade for business aircraft where they are available. Operational performance is enhanced, fuel consumption lessened, and resale value can be boosted. But how can owners considering an engine upgrade set about financing their upgrade?

This is a complex area, with an owner’s decisions likely to be influenced by a variety of factors, such as their demands for the aircraft in the long-term, the age of the platform, and any existing financing arrangements.

For many business aircraft owners, it could make sense to simply acquire an entirely new aircraft. But for some, a good option is to remove their existing engine(s) and replace it/them with another.

Blackhawk Aerospace is a specialist provider of such engine upgrade work through its XP Engine+ Upgrade program. As of May 2024, the company had upgraded over 1,000 Beechcraft King Air, Cessna Caravan, Conquest and Piper Cheyenne aircraft with factory-new Pratt & Whitney Canada engines.

Edwin Black, the company’s President, explains that the company develops Supplemental Type Certificates (STCs) to take the stock engine out of an aircraft and install a brand- new engine with more horsepower.

“The demand is strong because everyone wants to go faster,” he says. “We are seeing more demand now than we ever have in Blackhawk's 25-year history and it’s because of the convenience of flying private vs commercial, especially when you are flying for your business.”

When is it Easiest to Finance an Aircraft Engine Upgrade?

The easiest way to finance an upgrade is “if you don’t have an aircraft already and are in the market, because you can buy the aircraft and engines at the same time and roll them into the same loan,” he suggests.

When you already have an engine, however, it takes more effort to get financing, though Blackhawk has been working with providers who have offered such solutions for just the engine for some time. “Financing helps customers enjoy the benefits of flying faster sooner rather than later,” Black adds.

Pratt & Whitney Canada (P&WC) has worked closely with Blackhawk for over 20 years, explains Geoffrey Corbeil, Executive Director for Commercial Services at the engine manufacturer, highlighting that Blackhawk celebrated its 150th upgrade of a Cessna Caravan in October 2023 with two options available: XP140 and Vy conversions, featuring P&WC PT6A-140 and PT6A-42A engines, respectively.

According to Corbeil, financing options will naturally depend on the owner’s circumstances. But, even when financing is involved, there can be a significant increase in aircraft value, he adds.

More broadly, Corbeil says owners should consider enrolling in an engine program, such as P&WC’s ESP.

While this is relevant for all owners, he argues, it could be particularly important for those who install a new engine (through the Blackhawk program, for instance) into an older aircraft.

“As aircraft age, which is the case of all aircraft that go through an upgrade, the proportion of the aircraft value that’s assigned to engines grows with time, so that’s one more reason to do it,” he explains.

Which Lenders Will Finance an Aircraft Engine Upgrade?

1st Source Bank provides a range of financing options for engine upgrades, including supporting clients who work with Blackhawk. Christopher Lee, President of the bank’s Aviation Division, says that such upgrades tend to be conversations that happen around overhaul time, and are worth considering for the value and performance they add.

“At some point in the ownership lifecycle it stops making sense to upgrade the whole aircraft,” he elaborates. “If your aircraft meets your mission well, then why not take the best care possible of the aircraft you and your family, friends and employees travel on by investing in the most valuable part of the aircraft?”

If an owner enjoys their aircraft but doesn’t feel like a whole aircraft upgrade is a good fit, considering an engine upgrade when the time between overhauls (TBO) is low is “a great way to extend the life of the aircraft while enjoying more performance”.

These types of upgrade tend to be financed by institutions that understand the collateral and the details of the process well, Lee says, “so it may be a product not offered by your current lender – I’d recommend reaching out to your finance provider early in the process to get pre-approved.”

Begin with a call to the bank to get pre-approval prior to ordering the engines, Lee advises. The bank will then perform an evaluation of the aircraft, both pre- and post-engine install.

“Once the approval is granted, the client can consider the upgrade and begin scheduling the work to be completed. When the engines have been installed and test flown, we complete the financing,” he adds.

And owners should be willing to consider a range of financing opportunities, Lee notes. For example, he illustrates, 1st Source doesn’t just work with existing clients. “If an aircraft owner needs help with approving an engine upgrade and they are currently with a competitive finance institution we can refinance their current loan to include the upgrade,” he explains, adding that the bank also has owners with no debt come to it for help for upgrades, too.

How Much of the Aircraft Engine Upgrade will Lenders Finance?

Most lenders can finance engine overhauls and upgrades, either as part of the purchase of the aircraft or after the aircraft has already been purchased, says Brian Macbean, Director, Credit & Sales at AOPA Aviation Finance.

“In either case, lenders will use the post-overhaul/upgrade value of the aircraft to determine how much financing is available,” he explains. “In most cases, lenders will finance up to 85% of that value, or 85% of the value being added to the aircraft.”

When considering upgrade financing, it’s best to have a quote or estimate from the shop that will do the work before approaching the lender for financing, Macbean says. “Doing so will allow the lender to calculate the value of the aircraft and the amount of available financing up front.

“When financing upgrades, lenders will want to be involved in the process from the beginning, and they will typically hold 50% of the funds until the work has been completed.”

Determine the costs of the upgrade early on, Macbean advises, getting quotes and estimates from all shops and mechanics involved.

It’s important to understand that lenders are generally not able to finance 100% of the cost of the upgrade or overhaul, so there will be some out-of-pocket expense up-front,” he highlights. “AOPA Finance can help you understand the process and how the lender will work with you and the shop to pay for the upgrade.”

Engine upgrades are available through Honeywell’s Maintenance Service Plan (MSP) as service bulletins are released, with the potential for replacement of the engine when necessary.

“Ultimately, it’s up the owner to determine the level of risk and unpredictability they are prepared to expose themselves to when not choosing to upgrade or choosing a service program,” says Zach Ungerleider, MSP Sales Manager, Engines/APU for the US, Canada -East and Asia-Pacific.

“The value is in the availability, utilization, and valuation of the asset itself. Some owners see engine maintenance programs as ‘expensive insurance plans’, but the program can cut costs over the long-term, while increasing the pedigree of the engine.”

Utilizing the latest engines will prop up the depreciation value of the aircraft when the owner decides to sell it, he adds.

Rolling Other Work into an Aircraft Engine Upgrade

For some owners, in addition to engine upgrades or overhauls, areas like interior modifications and avionics may also be candidates for traditional forms of financing, says Preston Holland, Chief Commercial Officer at FLYING Finance.

He recommends that customers looking to increase the value of the aircraft through such modifications consider doing them all together, perhaps even including paint.

“This allows the capital source financing for the upgrade to take first lien position on the entire airplane, and the after-repair valuation is often higher than before the aircraft was sent in for the upgrades,” he says.

The bottom line from a financing perspective in upgrades and overhauls comes down to the value added to the aircraft by the upgrades, Macbean summarizes, especially if you have financing on the aircraft already, or are doing the work as part of the purchase.

“If there is sufficient value added to the aircraft, financing makes great sense,” he concludes. “If the added value is marginal, financing the upgrade wouldn’t make as much sense.”

More information from:
1st Source Bank: www.1stsource.com/aircraft
ACC Aviation: www.accaviation.com
AOPA Aviation Finance: https://finance.aopa.org
Blackhawk Aerospace: www.blackhawk.aero
FLYING Finance: https://flyingfinance.com
Honeywell Aerospace: https://aerospace.honeywell.com
Pratt & Whitney Canada: www.prattwhitney.com

5 Potential Financing Routes for Your Aircraft Engine Upgrade

Tristan Brouard, Associate Vice President, Asset Management at ACC Aviation, outlines five potential financing routes for upgrading an aircraft engine.

1.    Cash payment: An upfront payment for those with the funds available, this enables aircraft owners to avoid paying interest charges and grants them immediate ownership.

2.    Financing via lenders: Aircraft owners can apply for a loan tailored for the engine upgrade. Terms will vary, based on the lender and owner’s financial status.

3.    Engine OEM financing programs: Some manufacturers offer financing for upgrades, often with favorable terms such as low-interest rates.

4.    Engine swap program: Some engine manufacturers and overhaul facilities may offer  engine swap programs, allowing owners to part-exchange their current engine(s) for a newer or upgraded ones.

5.    Leasing: For some, it may be worth considering leasing the upgrade engine, making regular payments over a set period. Options to purchase or return may be available at the lease end.

“The choice of the right financing strategy will depend on the financing options available and applicable for the buyer at the time, and the buyers’ business objectives,” Brouard says, adding that ACC Aviation can advise and support buyers through the process.