Mike Smith

On April 2, the new tariff plans were made official. As we witness the initial market reactions, I think about all the market dynamics we’ve seen at Scope Aircraft Finance since 1975.  

As we celebrate 50 years, now under our third generation of leadership and staff, we have some incredible knowledge and history passed down through the generations. Some of that knowledge includes lending fundamentals, which have ensured that we were best able to weather the economic storms and changes over time.

As the market reacts to the tariffs, I continue to reflect on some of those lessons, especially given that we’re in the middle of a very unique economic period.

For example, when I was a young credit analyst, one of our most experienced lenders used to preach to me the importance of “proper, prudent loan structure.”  His point was that to be a successful lending organization in the long term, we must operate with “discipline.”

Operating with Discipline

Operating with discipline means many different things as you look at an aircraft loan. It can mean taking the time to making sure the borrower has the right down payment and note repayment structure (known as amortization). It also means making every effort to ensure equity is maintained through the life of the loan.

Discipline further involves staying consistent with our underwriting practices and standards. It means maintaining the same approach during both prosperous times and challenging times.

This concept of discipline isn’t just isolated to aircraft financing.

Across the industry, the most successful organizations are those that have a disciplined mindset to how they conduct business. Their mindset is vital in helping them navigate the economic changes that may result from as tariff and tax policies evolve.

These changing times can also bring incredible purchasing opportunities. If financing an aircraft is part of your purchase process, ensure that you’re working with an organization that understands how to navigate the dynamics of shifting economic conditions.

While no one can predict the future, surrounding yourself with a team who operates with a disciplined mindset will help you set yourself up for the best ownership experience possible.

Spring is around the corner—a season of change. And that’s timely, given what we’ve seen in the news so far; 2025 is shaping up to be a year of change.

From tariff threats and evolving geopolitical dynamics to inflation that refuses to ease, there’s a good potential for turbulence on the horizon.

So, the best advice? Buckle up.

Finance Rates: Volatility Persists

From a finance perspective, rates continue their volatile trend. Looking back at our key indicator—the 10-year Treasury—we’ve seen a 0.21% rate decrease since the last issue of The Plane Truth as of early March.

Keep in mind, we’ve seen rates go up and down in various amounts of the past year, so it’s possible rates may increase back to that level we saw in February, if not higher.

On the other hand, it’s also possible rates stay steady or decline further. As I said before, buckle up.

What about the Federal Reserve and their interest rate setting? After holding rates steady at their last meeting, all eyes are on inflation and job data. A slowdown could spur the Fed to change course and lower rates later this year. 

On the other hand, if inflation stays stubbornly high, expect the Fed to stand firm and leave rates unchanged.

2025 Economic Outlook: Impact on Aircraft Financing

What does this all mean for aircraft financing and aircraft transactions? So far, 2025 has started strong with transaction volume.

Anecdotally, market activity is healthy, and our team at Scope has been pleased with the pace of closings.

This is encouraging. But as we enter into spring, be sure to keep those seatbelts fastened in case of rough air.

As we’ve discussed over the past few months, longer-term interest rates have tended to stay elevated, even when the Federal Reserve was cutting rates. I say “was” because after their most recent meeting on January 30, the Fed opted to push pause on further cuts while they study the incoming data.

What data points are they waiting for, and why does it matter? Going back to a line made famous by former Secretary of Defense Donald Rumsfeld, there are two distinct areas of focus right now by the Fed. The “known unknowns,”  and the “unknown unknowns.”    

The Fed’s focus in adjusting rates is part of their “dual mandate” of full employment and price stability. The concept of “price stability” is mostly rooted in trying to keep inflation at around 2%.  As I’m sure you’ve seen at the grocery store, prices on things keep going up in fits and starts. Unfortunately, the inflation level is still higher than the Fed wants to see, which explains the pause in rate adjustments. The “known unknown” here is that we don’t know when inflation will slow down a bit further to allow the Fed to continue to lower rates.

Another “known unknown” would be impacts of any tariff policy emanating from the new presidential administration. Time will tell exactly what tariffs are put into place, and what sort of economic impact that may have. We did see a preview of what’s to come in early February.

A third “known unknown” is the rising government debt. Fundamentally the Treasury bills and notes fund the government deficits, and some of the increase in the longer-term rates (which impacts things like aircraft loan rates) can be attributed to market concerns about ballooning government deficit spending and subsequent increased debt.

Finally, another unknown unknown would be any geopolitical or other “black swan” event which could impact the U.S. economy. That would change the approach the Fed is taking with interest rate policy.

As the year continues to take shape, keep your eye out for these known unknowns, and always be aware of the unknown unknown that could be lurking around the corner!

A new year traditionally represents new beginnings and a clean slate. From an aircraft finance perspective, this new year is starting off with quite a bit of carry over activity from 2024. 

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This carryover is due to several buyers deferring their purchases into 2025 in anticipation of a more favorable tax environment under the new Presidential Administration. Even so, we saw robust financing activity closing out 2024, despite interest rates starting to increase.

Rate Direction in 2025

In December, the Federal Reserve dropped their interest rate another 0.25%. However, as we saw through the back half of 2024, this did not result in a decrease in longer-term interest rates. Case in point: the 10-year treasury yield rose up 0.45% from December 6, 2024, to January 6, 2025. 

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The Fed’s cut was also considered a “hawkish cut.” Meaning, they plan to slow the pace of rate reductions in 2025 and rely more on economic data to make future cut decisions. 

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Only time will tell how many more cuts the Fed makes in 2025. But, as we’ve seen with longer-term interest rates, don’t expect much downward change in aircraft finance rates in the near future.

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The good news is that this overall interest rate stability signals a fundamentally healthy economy. Thankfully, all signs point to a robust year in 2025. This bodes well for aircraft financing availability, and we’ll hopefully see more predictability in financing costs than in recent years. 

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Amid the hustle and bustle of the holiday season, it’s important to pause and recognize that this season itself is rooted in the spirit of gratitude. As we wrap-up another year I thought it fitting to look back and touch on three things I’m grateful for in the industry. 

First, I’m grateful that interest rates continue to normalize. In looking at the 10-year treasury as of this writing, it sits at 4.181%, which is down from 4.425% as of our last publication. We’ll dive into the subject of “the yield curve” in a future discussion but we’re starting to see the yield curve flatten, meaning shorter-term rates equal to or lower than longer term rates, which is the sign of a “normal” rate environment and “healthier” economy. 

Second, I’m grateful that the aircraft buying market has seemingly adapted to the current interest rate environment. While rates remain elevated compared to recent memory, we continue to see stable or increased loan demand and are hearing the same from peers. Even with interest rates where they are, it’s still a great time to consider financing. 

And speaking of peers, for my third gratitude, I’m grateful for our industry peers who specialize in aircraft lending. It’s clear through reviewing the data from FAA filings, these financial institutions remain engaged in the industry and appear to be positioned well for continued ability to serve the industry in 2024. It’s a reminder of the value of working with a financial institution who understands how to finance an aircraft, and something to keep in mind should you be exploring financing or refinancing. 

Looking forward, I think 2025 should bring some clarity on where rates, and the economy, go from here, and we’ll dive into that in our publications early next year. In the meantime, I hope you enjoy the rest of the holiday season!

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It’s clear the year-end push is upon us. If you’re considering financing an airplane acquisition by December 31st, I recommend starting the process—soon. 

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While every financial institution has a different process and timeline, it doesn’t hurt to engage early to ensure funding by year-end. 

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Remember, financing is a team effort between bank and borrower. Approach the application process with a collaborative mindset for the best outcome. 

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What the Fed: A Look at Market Conditions

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On November 7, the U.S. Federal Reserve lowered its target rate by 0.25%. However, it  doesn't mean that longer-term rates (e.g., aircraft finance rates) will drop. As of November 8, the 10-year treasury sits at 4.32%. That’s 0.11% higher than what was quoted in my article on October 21.

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Going forward, I’ll continue to reference the 10-year treasury monthly as an indication of general rate trends. That said, aircraft finance rates don’t exactly match the 10-year treasury. It’s merely a benchmark to gauge rate movements on loans across the board. 

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With the continued rise in the 10-year treasury, the phrase “higher for longer” is a topic of conversation. While it’s too early to predict 2025 trends, the current rates seen today on longer-term loans may persist. This will be something to keep an eye on as you finish out the year and plan for 2025. 

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With decreasing federal interest rates in the news, I’m hearing a common question right now: “Where are rates going?” And how will they affect aircraft loans?

I could quote various economists, or even recap what the Federal Reserve Board members are thinking. However, the reality is that no one knows for certain where things go from here. From a lending perspective, the best way to examine market conditions is through tangible actual and historical data over forecasts.

As you may be aware, the phrase “the Fed cut rates” does not mean that rates across the board (e.g., car loans, aircraft loans, or mortgages) will drop the same amount the Fed’s rate cut suggested. In fact, a Fed rate cut may not even mean that rates we see every day (airplane loans, for example) drop at all. To the contrary, they may even increase marginally.

Let’s dive deeper. In September, the Fed “cut rates” by 0.50%. However, the rate cut by the Fed was the “Federal Funds Rate,” which meant that not all rates dropped equally. For example, the 10-year Treasury Rate (which is a better indication of the general rate trend in the aircraft lending world) actually decreased 0.993% from its 2024 high before the Fed’s decision. Compare that to the days immediately after the Fed rate cut, the 10-year rate increased 0.085%. We’ve seen similar trends with our aircraft loan rate offerings.

What does all this mean? In essence, it supports the fact that, overall, rates have trended down, a trend that began before the Fed’s decision. It also means that the market may already have priced in the anticipated rate cuts through the end of the year, as seen by the pre-Fed cut drop in the 10-year Treasury. If financing an aircraft loan is on your radar, I think this is good to keep in mind as we push to year-end.

About the Author

Mike Smith is President of Scope Aircraft Finance and is based in Columbus, Ohio. Scope is a wholly-owned subsidiary of Park National Bank and an industry leader in providing finance solutions in the high-performance piston, turboprop, and light jet markets throughout the lower 48 States. Mike serves on the board of the Ohio Regional Business Aviation Association and is an active member of the National Aircraft Finance Association.