September 15th 2008 was a day that many will remember. It was the day that the financial services firm, Lehman Brothers, filed for Chapter 11 bankruptcy protection. The filing remains the largest bankruptcy filing in U.S. history, with Lehman holding over $600 billion in assets.
Pilot training loan portfolios
Around this time, a number of European banks had created funds for financing pilot training. Together with the projected increase in air traffic and the relatively high salaries earned by airline pilots the banks thought they were on to a good thing. They hadn’t counted on a recession. The cost of training a pilot was high – around € 150.000 or more – but there were plenty of school leavers willing to borrow this money in return for the prospect of gaining a coveted ATPL, the official Airline Transport Pilot License issued by The European Aviation Safety Agency (EASA). It is the highest licence a pilot can obtain and is the qualification that allows the holder to act as the Pilot in Command (PIC), or Captain of a large transport aircraft.
The banks got it wrong
In the event, the pilot training funds turned out to be counter-productive. Due to the economic crisis, precipitated by the crash of Lehman Brothers, the projected increase in air traffic failed to materialize. The banks were simply fueling a new stream of aspiring pilots, ab initio, to join a pool of unemployed pilots waiting in line for the chance to fly for a major airline company. Initially the loan repayment plan for these young people was taken over by a ‘payment guarantee fund’ which had been built into their loan contract (and which they themselves had paid for out of their loan sum). Despite the fact that their own fund was covering their loan repayments to the bank, this offered them little respite. In the event that the newly qualified pilots needed to supplement their scheduled repayments from the fund, the banks simply added the amount they were receiving from the repayment guarantee fund to the total loans sum owed by the pilots. So now newly qualified pilots were paying twice for the privilege of having joined the growing ‘swan lake’ of underemployed and unemployed.
Seen against this background, the young people who have successfully completed their flight school and – more importantly – have also been successful in finding work as a professional airline pilot can be considered to be the lucky ones.
The best of the bunch
But frankly, luck didn’t actually have much to do with it. These days airlines can afford to be extremely selective in their choice of new pilots. The ‘lucky’ few possess the qualities the airlines are looking for. That is why P2P4U can fairly claim that our pilots, who are seeking refinancing of their training loans on more equitable terms, genuinely represent the very best of the bunch from the bank portfolios of pilot training loans. Pilots are reliable people! Their reliability is one of the qualities on which airlines place a high priority in their selection procedures. Every pilot in the P2P4U database has also been carefully approved by a credit rating system which we ourselves have implemented along the lines similar to the FICO credit rating system. Without exception, all our pilots are earning an annual income before tax of between € 50.000 and € 120.000. Their incomes rank in the top 1% of European incomes, so they are are more than capable of meeting their repayment obligations on their loans. In addition to their income however repayments on the loans to our pilots are covered by an insurance against loss of license and loss of income through sickness or invalidity. Investors lending money to our pilots to refinance their training loans will be unlikely to find investment opportunities elsewhere, which pay similar rates of interest on loans with the same high degree of security. That’s why we claim that lending to our pilots makes excellent sense for investors.
Interest rates of 2.5% to 3.5%
The interest rates which our pilot members are offering to potential investors will be negotiable. Investors can however count on a return on their loan which will be based on the EURIBOR/LIBOR tariff plus a premium of around 2% to 3.5%, dependent on the amount of the loan and the duration of the loan agreement.