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Aircraft Financing: How Does it Work?

Andy Blundell

Andy Blundell, MD of Aviation and Marine Finance delves into the mechanics of how aircraft financing works...

Financing the purchase of aircraft is a job for a specialist funder. Unsurprisingly, it’s not something a typical high street bank would consider. So, once you’ve found a specialist lender, what can you expect?

Andy Blundell discusses the process at Close Brothers Aviation and Marine…

Question: How are aircraft finance packages structured?

Blundell: Deciding how to finance an aircraft is a key component in the ownership process. Any good financier will work with its clients to understand the key drivers of each transaction, accounting for the proposed usage and maintenance cycle of the aircraft, together with the cash flow requirements of the borrower to offer a tailored and bespoke solution for each transaction.

This isn’t just marketing speak. Because of the nature of General and Business Aviation, you cannot apply a ‘one-size-fits-all’ approach to transactions. Each deal is unique in its own right.

The sheer variety of aircraft available is another factor to consider and is a primary reason why it’s important each opportunity is assessed individually.

Our Aviation team has helped customers purchase thousands of aircraft, ranging from small flying club aircraft to mid-sized corporate jets, historic warbird aircraft, two seat private helicopters to large corporate and air ambulance helicopters.

Facilities are usually structured over five to seven years, with final ‘balloon’ payments normally an option, depending on the customer requirements and the specific aircraft being financed. Facilities in sterling, Euro and US Dollars are available.

Question: Typically, how does aircraft finance work at Close Brothers Aviation and Marine?

Blundell: The finance facilities are structured through a loan, with security by way of a mortgage over the aircraft; facility fees normally apply. The mortgage will be registered at the CAA or another national aviation authority.

When lending to companies and limited liability partnerships (LLPs), Close Brothers also registers a mortgage with Companies House, and personal guarantees may be required.

Arranging the financing for the purchase of private aircraft is usually a straightforward process. A basic transaction for a small personal or corporate aircraft may proceed as follows:

  • The borrower provides information about themselves and their prospective aircraft to the lender.
  • The lender performs an appraisal of the aircraft's value and undertakes its own internal credit analysis. Normally the lender would expect the borrower to undertake their own pre-purchase survey of the aircraft.
  • The lender and borrower agree terms on the structure of the transaction.
  • The lender performs a title search based on the aircraft's registration number to confirm that no liens or title defects are present.
  • The lender then prepares documentation for the transaction, which includes dealing with the vendor, insurers, maintenance organisations and (where applicable) lawyers.
  • At closing, the loan documentation is executed, and the funds are transferred.

Question: Is insurance required for aircraft or helicopters?

Blundell: Yes – all aircraft must be comprehensively insured, with the Lender’s interest in the aircraft noted on the policy.

Question: What type of aircraft are financed at Close Brothers Aviation and Marine?

Blundell: We can finance a wide range of aircraft, including light piston aircraft, turboprops, helicopters, executive corporate jets and air ambulances. We also finance vintage aircraft and are a strong supporter of historic aviation in the UK. Aircraft are usually registered in the UK, USA, the Isle of Man or Guernsey.

We can finance brand new aircraft direct from the manufacturer, or pre-owned aircraft that are being sold from dealers, brokers or via private sale. And we can also consider refinancing aircraft that are already owned, to release capital for overhauls, upgrades, rebuilds or other purposes.

What we can’t finance, however, are aircraft operated by major airlines and the Armed Services.

Visit our dedicated aviation finance page for more information.