The National Aircraft Finance Association (NAFA)

Tony Kioussis (00:34):

Welcome to another asset insights podcast covering the aircraft ownership life cycle. I am Tony Kioussis, president of Asset Insight, and your host. According to its website, the National Aircraft Finance Association, or NAFA, is a professional association that facilitates the interchange of ideas and capital that finance the world’s general and business aviation aircraft.

Tony Kioussis (00:57):

NAFA provides a forum for the discussion of issues impacting the industry, exploration of best practices, and review of risk mitigation strategies, in addition to its other core mission of professional education, networking, and industry advancement. Joining me today to discuss the organization’s capabilities and services in greater detail is Jim Blessing, NAFA’s president. Let’s start off by learning a bit about the history of NAFA, when the organization was founded, and how has it evolved into what it is today.

Jim Blessing (01:29):

Thanks Tony, and appreciate your having us here today. NAFA, the National Aircraft Finance Association, is an idea that started in the late 1960s. It was a group of lenders who wanted to come together to form a stronger industry in support of aircraft buyers. So they were trying to figure out, how do we find out who all is lending on aircraft.

Jim Blessing (01:50):

They reached out to a title and escrow firm in Oklahoma City, and that firm did some research to find out who was a common core of people lending on aircraft. And over the course of the next few years, that group came together in a more formal way and formed what at that time was known as the Aircraft Finance Association, or AFA. The AFA, in its early years, worked to develop an FAA escrow process to immediately secure lean holder interests in aircraft.

Jim Blessing (02:21):

It wasn’t an easy process. There was a lot of litigation with that to make it what it is today. And actually, some of the early firms that were engaged with the Aircraft Finance Association, or AFA, were Cessna Finance and Piper Finance, because they were trying to figure out how to more rapidly secure interest in their aircraft. And if you think about back in the heyday and into the late seventies, those manufacturers were pumping out a lot of aircraft, a lot more than today. They were pumping out thousands of aircraft a year, so they were looking to improve the process for recording interest in aircraft.

Jim Blessing (02:55):

So another interesting sidebar, the Aircraft Finance Association in its early days was trying to figure out how to get their hands around valuing aircraft, especially when you consider that you’re trying to finance a used aircraft. What’s the basis for that airplane to be worth what a person is paying for it? And they were able to convince some people to start a company called the Aircraft Blue Book, which was the original comprehensive aircraft value guide. Since then, in the eighties, the Aircraft Finance Association rebranded as the National Aircraft Finance Association, or NAFA, what it is today. And we’re coming up on our 50th anniversary of supporting the aviation community and aircraft buyers.

Tony Kioussis (03:33):

Thanks for that. Well, what is NAFA’s mission statement, and what are the organization’s goals?

Jim Blessing (03:39):

NAFA is a professional association, and we like to say that the organization facilitates the interchange of ideas and capital that finance the world’s aircraft. And really, it’s focused on general and business aviation aircraft, not so much into the commercial aircraft on the upper end. We work hard to provide a forum for discussing issues that are impacting our industry. We do that through conferences, and educational materials, webinars, and other things that maybe we’ll discuss a little bit further along.

Jim Blessing (04:07):

We work to interchange best practices and risk mitigation strategies with other members, so provide that forum for people to discuss what they’re doing that’s working well and what’s not working well. We support professional education. We incorporate professional education in our events and in everything that we do, and we also push for industry advancement. Our goal really is to help our members do financing better. That is really what we focus on.

Jim Blessing (04:33):

We put everything related to aircraft finance in one place, and we bring people together to exchange the ideas that they have, or to educate people who are new to the industry on what those practices are. And the networking is probably one of the most beneficial parts of our organization. It allows people to build relationships with other lenders and non-lenders, other people that support the process of an aircraft purchase, and again, sharing best practices and making sure that people are recording their interests and doing the transaction the proper way.

Tony Kioussis (05:04):

Can you provide more detail about NAFA is networking and educational opportunities, which, as you said a moment ago, includes best practices?

Jim Blessing (05:14):

Historically, we have an annual conference in the spring of each year where we provide members with networking opportunities and educational opportunities. We have receptions, mixers, a golf tournament, charity auction, all part of that annual meeting. We also have an American Society of Appraisers, or ASA education day, which is in concert with the conference. It allows people who are active in the appraisal community to obtain their continuing education credits, and it dovetails very well into our annual event.

Jim Blessing (05:43):

We also collaborate each year in advance of NBAA’s annual conference, or base, that they have in the fall. We collaborate with the International Aircraft Dealers Association, or IADA, and we host a large networking event with them just in advance of the NBAA’s opening on the annual conference. It has become really one of the premier networking events of the week. We’re now seeing 500 or 600 attendees at that event. And it’s everyone who is active in aircraft sales and finance all in one forum. Insurance firms, attorneys, escrow, it’s become a real sizeable event.

Jim Blessing (06:18):

We also provide a forum for our members to discuss issues that are unique to their different segments. So for example, a few years ago, we formed a committee within NAFA called the Light Aircraft Round Table, and that gave light aircraft financiers another opportunity to network and discuss issues that are unique to them. It’s different on the light aircraft side versus the larger aircraft side, the number of touch points that an individual will have with different aspects of the transaction.

Jim Blessing (06:47):

So for example, a light aircraft financier might be both the front end, the middle end, and the back end of a transaction, not necessarily having a credit department to send things to or a closing department to send things to. So this group identified some key areas that they felt needed to be addressed by the broader organization, like fraud prevention, getting real-time guidance on aircraft values, dealing with aging aircraft, navigating the insurance market, which is a challenge for a lot of people today.

Jim Blessing (07:15):

We set up that one particular group as an example of one that can represent a niche within the organization and provide a little bit more touchpoint. This year, with COVID, we’ve had to change directions and what we’ve offered. We’ve had to postpone our meeting to 2021, and in doing so, we had to reinvent a little bit about how we get our message out and how we get people together to network or discuss issues that are topical. So we’ve expanded our newsletter. We’ve expanded the articles that we’re publishing. We’ve added educational content on our website. And we’ve launched a monthly webinars series that is really doing quite well.

Tony Kioussis (07:54):

What types of entities comprise NAFA’s membership, and how has the organization grown since its inception?

Jim Blessing (08:01):

Back to the early days, when it was just a few people that were getting together to figure out how to corral the industry, the organization grew from there through the eighties, had about 60 to 80 member companies. Since then, the industry has continued to get more and more organized. And really, we have a tremendous cross section of niche companies that are focused specifically on the transaction of an aircraft sale.

Jim Blessing (08:23):

And as that niche has gotten more and more formalized, NAFA has grown to nearly 200 member companies now. They’re represented by, we’ve got the largest banks in the country. So the top five US banks in the United States are members of NAFA, that’s JPMorgan Chase, Bank of America, Wells Fargo, Citi, and US Bank. Seven of the top 10 US banks are members of NAFA.

Jim Blessing (08:45):

We’ve got niche financiers, such as leasing companies. We’ve got certified appraisers and appraisal services, aviation attorneys, title and escrow firms, aviation tax specialists, aircraft insurance firms. We’ve got aircraft manufacturers that are members of NAFA, like Embraer, Gulf Stream, Bombardier, Dassault, Textron, and Cirrus. Aircraft broker dealers, everyone who’s involved with the touchpoint of someone buying an airplane is represented by NAFA and by NAFA membership.

Tony Kioussis (09:15):

Let’s go into that a little bit more. Let’s discuss NAFA’s market presence. I realize that these figures will change going forward, but can you give our listeners a sense of the percentage of the finance market NAFA’s aircraft finance companies represent, and what that figure means in terms of finance volume?

Jim Blessing (09:34):

So I’m going to start by saying that we think aircraft financing is in a unique environment right now. It appears to be growing in popularity thanks to the very low interest rates that we’re seeing. We are also in an environment where it appears that aircraft purchasers are becoming more liquid, aircraft purchasers are building cash reserves, or at least the demographic that’s buying aircraft are building more cash reserves, so they’re leaning on financing more right now.

Jim Blessing (09:54):

We’re also seeing an uptick in new aircraft buyers. So we’re seeing people who are entering the market, who haven’t owned before, or even people who haven’t owned for 15 or 20 years and they’re getting back into aircraft ownership. So we think that the aircraft financing market is seeing more activity than it historically sees in the environment that we’re in today.

Jim Blessing (10:15):

And historically, figures have been offered by different firms that 30% of all aircraft purchases are financed. That has been what we’ve seen over the past 12 years, since 2008. But we think that when we look in early Q1, and we’ve got a bunch of data aggregators that we work with, that we’ll be able to see an increase over that 30%. but we really won’t know that until we get to the end of the year and can look at those full ’20 numbers in totality.

Jim Blessing (10:44):

Prior to that, and we went back to, I guess, two years ago, we did an analysis with one of the larger data aggregators in our segment and they found that 38% of the aircraft that were financed in 2019 were secured by NAFA member lenders. And that totaled approximately 4 billion in total transactions. We think that that number will be higher this year. And again, we’ll have better visibility on that when we can get all of that data together and review it in Q1 of 2021.

Tony Kioussis (11:13):

What are the organization’s strategic priorities?

Jim Blessing (11:16):

We’ve got a few strategic priorities. Generally speaking, they are to expand our educational offerings. We want to develop and grow NAFA as the voice of aviation finance and we want to expand our collaboration with other industry associations. So to take these one at a time, the voice of aviation finance is a key priority for NAFA. So, I mentioned we’ve been working with data aggregators to survey the activity and what that activity is that’s represented by NAFA member companies.

Jim Blessing (11:45):

And we plan to continue to do that, tracking the activity and changes in the market and then distribute the information that we’re seeing through industry channels. So for example, our goal is to grow into providing a regular and recurring market update on the state of the aviation finance industry. We’ve started to do that this year with some various outlets. In addition, last year, we expanded our board of directors and added some OEM participants. We now have six OEM participants on NAFA’s board alone, and we feel that that will help with deepening the voice of NAFA in the industry.

Jim Blessing (12:23):

With respect to collaborating with other industry associations, I mentioned earlier that NAFA has a close relationship with the International Aircraft Dealers Association, or IADA. We want to grow support to other industry associations that are working to grow the aviation community, and we want to do that in partnership with them, find ways to help expand access to aviation, expand access to aircraft ownership, but in a way that overlaps with some of the other thought leaders.

Jim Blessing (12:50):

For example, working together, we think that we can work to bring a talented young professional group into our industry, and that’s an issue that is topical for all of the major associations right now, ensuring that we have a strong pipeline of young professionals that can come in and support the aviation industry into the future. We’ve got a scholarship program that we use as our tool for that. It supports aviation finance students from universities across the country.

Jim Blessing (13:19):

Last year, for example, we had nearly two dozen students at over a dozen universities that applied for the scholarship, and these individuals are just incredible. I think the average GPA was 3.62 for our student applicants last year. And they definitely represent the future leaders of our industry. Our goal is to grow that. We’re creating a new nonprofit foundation called the NAFA Foundation, and it’ll be a foundation that, in parallel with NAFA, allows us to raise more funds for student scholarships and for other philanthropic efforts of the organization. So, that’s the second key strategic priority of ours.

Jim Blessing (13:55):

Third, and this is more based on the current environment, so weathering the storm. We’ve got to find new ways to reach our membership, new ways to provide educational content, discuss issues that are topical in our market right now, and find new forums for people to share best practices. So, in addition to expanding our newsletter, articles on our website, and other content on our website, we launched a monthly webinar series earlier this year.

Jim Blessing (14:21):

And it was a pretty fun process. We had to learn how to embrace new technologies and new platforms, try and find the right way to bring a message across to a large group in a virtual environment. And we tested that with our first virtual annual meeting we held in May. And that went well, so we, in June, started our webinar series. June’s webinar was best practices in aircraft lending. It was presented during the International Aviation Women’s Association, or the IAWA, general aviation forum that they hosted and it highlighted the growing leadership roles that women are representing in our industry.

Jim Blessing (14:57):

In July and through the summer, we hosted additional webinars. We discussed how to manage a loan portfolio during this unique economic environment that we have right now, managing loan deferrals, managing defaults, avoiding fraud, preparing for the potential increase in defaults, and preparing for more fraud as the economy struggles. We’ve got additional webinars planned that will discuss regulatory changes that are coming in our market as recently as next year, and so we’ll be discussing that in a future months.

Jim Blessing (15:26):

We’ll also be discussing fundamental changes that we’re seeing in our market as we exit the COVID environment. And we’ll be talking about how our industry has been impacted, and is recovering, and changes that are happening in the lending community as a result of the recovery. So we’ve got a lot to talk about, and we’ll be using these new forums for virtual content until we can get back together.

Tony Kioussis (15:51):

Is there anything else you would want people to know about NAFA, for example, whom should interested companies contact with respect to NAFA membership?

Jim Blessing (16:00):

Our website is a pretty robust website. It’s got a lot of information on who is NAFA, who are the member companies, who you can network with, and additional educational resources. They’re all online. All of our webinars are also on our website. And the website is www.nafa.aero, or you can also email [email protected] for any questions that you might have about NAFA.

Jim Blessing (16:22):

Our executive director, Karen Griggs, is [email protected]. She can typically help with any questions that you might have about membership or about priorities of the organization, where we’re heading, what we’re trying to accomplish. And then our marketing director for any marketing related questions is Tracy Cheek, and her email is [email protected].

Tony Kioussis (16:43):

This has been another Asset Insight podcast covering the aircraft ownership life cycle. Please visit our ever-growing podcast library at assetinsightpodcast.com, and select from any number of topics discussed with business aviation industry experts. This is Tony Kioussis, and as always, thank you for listening.