Why Finance an Aircraft

Even buyers who can afford to pay cash for an aircraft often choose to finance the acquisition. There are sound financial reasons for this approach:

• Preserve liquidity: Aircraft prices range from $3 million to $75 million. Financing preserves capital for other investments, business operations, or opportunities.
• Leverage returns: If your investment returns exceed the cost of borrowing, financing increases your overall return on capital.
• Tax efficiency: Interest on aircraft loans used for business purposes is generally deductible. Combined with depreciation, financing can create significant tax benefits.
• Cash flow management: Monthly payments are predictable, making budgeting easier than a single large outlay.
• Asset matching: Financing the aircraft over its expected useful life aligns the cost with the period of benefit.

Financing Structures

Secured Loans (Traditional Financing)

The most common financing structure for business aircraft. The aircraft serves as collateral for the loan, similar to a mortgage on real estate. Key characteristics:

• Loan-to-value: Lenders typically finance 70-85% of the aircraft's appraised value. Some will go higher for strong borrowers or newer aircraft.
• Terms: 10-20 years, with 15 years being most common for newer aircraft. Older aircraft may have shorter terms.
• Interest rates: Fixed or variable rates, typically 100-400 basis points over SOFR/base rate depending on borrower credit quality and aircraft type.
• Down payment: 15-30% of the purchase price.
• Amortization: Monthly or quarterly principal and interest payments, with some structures offering balloon payments at maturity.

Operating Lease

An operating lease provides use of the aircraft without ownership. The lessor retains title and residual value risk. Benefits include:

• Lower monthly payments than a loan (since you are not paying for the full value)
• Off-balance-sheet treatment (subject to accounting standards)
• Flexibility to upgrade at lease end without selling
• Residual value risk transferred to the lessor

Operating leases are common for corporations that want the use of an aircraft without the balance sheet impact of ownership. Typical terms run 3-7 years.

Finance Lease

A finance lease (capital lease) is structured so the lessee effectively bears the risks and rewards of ownership. The aircraft appears on the lessee's balance sheet, and the lessee typically has an option to purchase the aircraft at lease end for a bargain price (often $1 or fair market value). Finance leases can offer tax benefits similar to direct ownership while preserving certain financial advantages of leasing.

Tax Lease

Specialised lease structures designed to maximise tax benefits. The lessor claims depreciation and passes the benefit to the lessee through reduced lease payments. These structures are complex, require significant transaction value to justify, and typically involve specialised aviation leasing companies.

The Financing Process

1. Pre-qualification: Before you begin aircraft shopping, we can arrange pre-qualification with one or more lenders. This establishes your borrowing capacity and gives you confidence in your budget. Pre-qualification typically requires basic financial information and takes 1-2 weeks.
2. Lender selection: We identify the most appropriate lenders for your transaction based on aircraft type, transaction size, borrower profile, and desired structure. We approach multiple lenders to ensure competitive terms.
3. Application: The formal application includes detailed financial statements, tax returns, aircraft specifications, and a description of the intended use. We help prepare the application package and present it in a format that lenders find compelling.
4. Term sheet: Lenders issue term sheets outlining proposed rates, fees, terms, and conditions. We review term sheets, negotiate improvements, and help you compare offers on an apples-to-apples basis.
5. Due diligence: The lender conducts due diligence on both the borrower and the aircraft. Aircraft due diligence includes an independent appraisal, title search, and sometimes a physical inspection. We coordinate these activities to keep the process on track.
6. Closing: Loan documents are prepared, reviewed, and executed. The lender funds the loan, the purchase closes, and a security interest (lien) is registered on the aircraft. We work with your attorney to ensure all documentation is correct and complete.

Lender Landscape

The aircraft financing market includes several types of lenders:

• Aviation specialty lenders: Companies focused exclusively on aircraft financing. They understand aviation assets deeply and can move quickly. Examples include Global Jet Capital, PNC Aviation Finance, and TVPX.
• Major banks: Large commercial banks with dedicated aviation lending teams. They offer competitive rates for strong borrowers but may have longer processing times and more rigid requirements.
• Private banks: Wealth management-oriented banks that finance aircraft as part of a broader client relationship. They often offer flexible terms tied to the overall client relationship.
• Leasing companies: Specialised aviation lessors that provide operating and finance leases. They are particularly active in the airline and corporate fleet segments.
• Export credit agencies: Government-backed agencies that provide financing to support aircraft exports. Relevant primarily for new aircraft purchases from specific manufacturers.

International Considerations

Aircraft financing across borders adds complexity:

• Cape Town Convention: An international treaty that provides lenders with enhanced security rights over aircraft assets, reducing risk and potentially lowering interest rates for compliant transactions.
• Registration jurisdiction: The country of aircraft registration affects the lender's security interest and enforcement rights. Some jurisdictions are more lender-friendly than others.
• Currency: Aircraft transactions are typically denominated in US dollars, but financing may be available in other currencies depending on the lender and borrower.
• Cross-border tax: Interest withholding tax, VAT, and other tax obligations must be considered in cross-border financing structures.

Refinancing

If you already own a financed aircraft, refinancing may reduce your interest rate, extend your term, or change your financing structure. We monitor the lending market and advise clients when refinancing opportunities arise that could improve their financial position.

Get Financing Assistance

Whether you are financing your first aircraft purchase or refinancing an existing loan, contact Plane Selection. We will assess your financing needs, identify the best lenders for your situation, and manage the financing process alongside your acquisition.