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Understanding how to finance an aircraft is crucial for individuals and businesses in the aviation industry. From purchasing new jets to upgrading existing fleets, various financial solutions exist to support the significant capital investments required. This article explores the different types of aircraft, how the industry is categorized, and the various financing options available to help you navigate the complexities of aviation finance.

What Is Aviation?

Aviation encompasses the aircraft industry and all activities related to human flight. Aircraft, machines designed for atmospheric flight, have evolved significantly since the first hot air balloons in the 18th century. The early 19th century saw the construction of the first airplanes, leading to rapid technological advancements, especially with the introduction of jet aviation. Today, aviation is a major global transport industry.

What Are the Main Types of Aircraft?

Aircraft can be broadly classified into two primary types based on how they achieve flight:

Heavier-Than-Air Aircraft

This category includes helicopters, autogyros, and conventional fixed-wing aircraft like airplanes. Fixed-wing aircraft typically use an internal combustion engine (piston or turbine) to generate thrust, propelling the craft forward. The movement of air over the wings then produces the lift necessary for flight.

Lighter-Than-Air Aircraft

Aerostats, such as balloons and airships, utilize buoyancy to float in the air, similar to how ships float on water. These aircraft achieve lift by displacing the surrounding air with a relatively low-density gas like helium, hydrogen, or heated air.

How Is Aviation Categorized by Usage?

Aviation can also be divided into two main categories based on its purpose:

Military Aviation

This category includes aircraft used for military purposes, such as patrolling, search and rescue operations, reconnaissance, transport, and training.

Civil Aviation

Civil aviation covers aircraft used for private and commercial purposes. This includes scheduled airline flights, cargo transport, and general aviation, which accounts for the vast majority of daily flights worldwide.

Understanding Aircraft Financing

The aviation industry is constantly evolving, making finance a critical factor for both individual owners and large corporations. There are many ways to finance an aircraft, and understanding the key terms is essential.

When seeking an aircraft loan, you'll need to be aware of your required contribution (down payment), current interest rates, and loan terms. Once you've identified a potential lender, you'll go through a formal application process. This typically begins with a loan, finance, or credit application, followed by a request for your business's balance sheet, financial position, and other credit information to assess viability.

Interest rates can be fixed or variable, and loan terms usually range from 5 to 25 years for most aircraft. The down payment amount can vary depending on the lender, the financed amount, and the age of the aircraft, typically ranging from 10% to 25%.

What Factors Influence Aircraft Loan Approval?

Lenders evaluate your credit based on several factors, including your payment history, existing debt, any bankruptcies, equity position, and credit scores. These elements collectively determine your ability to secure an aircraft loan.

What Types of Aircraft Can Be Financed?

Finance companies offer solutions for almost all types of aircraft, including jets, turbines, helicopters, and single or double piston-engine planes. They often provide financing for up to 90% of the purchase price or fair market value, whichever is less. These are typically simple interest loans, available for both new and used aircraft ranging in value from $10,000 to over $45,000,000. Flexible payment programs can be customized to fit customer requirements, offering low monthly payments and various payoff options. Refinancing is also available for upgrades such as engine improvements, avionics panel enhancements, or paint and interior refurbishments.

Applying for an Aircraft Loan

Before applying, you'll need to have the aircraft's value assessed. The application process requires aircraft information, personal information, co-applicant details, and a personal financial statement. Many customers choose to apply for pre-approval before signing a contract. Pre-approval offers flexibility, allowing you to negotiate for the best price at dealerships nationwide.

The aircraft loan application process typically takes two business days for approval. However, aviation loans above $750,000 or applications with complex financial profiles may take longer.

Using an Aircraft Payment Calculator

An aircraft payment calculator can help you estimate your monthly payments based on different scenarios. It's typically a five-step process:

  1. Enter the total loan amount needed.
  2. Input the current interest rate for the loan.
  3. Specify the number of years the loan will be financed.
  4. Enter your state's sales tax rate.
  5. Input the estimated amount for your aircraft insurance policy.

Which Aircraft Require International Registry?

All parties involved in an aircraft financing transaction—the buyer, seller, and lender—must apply to file on the International Registry for certain types of aircraft and engines. These include:

Key Aviation Finance Companies

A number of reputable financing companies specialize in the aviation finance industry, offering customized solutions to meet customer needs. These companies often have a wide selection of financing options for both single aircraft owners and fleet operators. Examples of such companies include:

Common Aircraft Financing Options

Beyond traditional loans, various financing alternatives are available, including aircraft mortgages, finance leases, and hire purchase facilities.

Finance Lease Agreements

In a finance lease agreement, the client and the finance company agree to rent a piece of equipment over a fixed term with a predefined residual value. The company obtains legal ownership of the leased item by paying the supplier's invoice. The client then pays rent for the use of the equipment over the lease term and is typically responsible for maintenance, insurance, and operating costs. This type of lease is often available for aircraft engines.

Operating Leases for Airlines

Many companies, including major players like GE, offer airlines operating leases for a variety of aircraft from manufacturers such as Airbus, Boeing, Bombardier, and Embraer. These leases typically span three to twelve years. A key advantage of operating leases is lower upfront cash outlays, which preserves working capital. They also provide airlines with the flexibility to introduce or change routes and capacity quickly without making large down payments to manufacturers, even for newer aircraft types. Companies also offer spare engines and exchange options for engines.

Short-Term and Long-Term Rentals

Various finance options include short-term and longer-term rentals for engines and other components.

Frequently Asked Questions

What information is required for an aircraft loan application?

To apply for an aircraft loan, you will typically need to provide the aircraft's information, your personal information, co-applicant information (if applicable), and a personal financial statement. Lenders will also require your business's balance sheet, financial position, and other credit details to assess viability.

How long does it take to get approval for an aircraft loan?

The aircraft loan application process generally takes about two business days for approval. However, loans exceeding $750,000 or applications with complex financial profiles may require a longer approval period.

What are the benefits of an operating lease for airlines?

Operating leases offer airlines several advantages, including lower initial cash outlays, which helps preserve working capital. They also provide flexibility to quickly introduce or change routes and capacity, and eliminate the need for large down payments to manufacturers, even for new aircraft models.

What types of aircraft engines need to be registered with the International Registry?

Jet propulsion aircraft engines with at least 1,750 pounds of thrust (or equivalent) and turbine-powered or piston-powered aircraft engines with at least 550 rated take-off horsepower (or equivalent) must be registered with the International Registry.