Aircraft financing is not a singular arrangement. Private aircraft, commercial aircraft, corporate aircraft are financed in different ways.
Financing private aircraft is somewhat similar to financing an automobile. A borrower gives a prospective lender information about himself and the plane he wants to buy. Then the lender appraises the plane’s value and runs a title search on the plane, based on the registration number; a security agreement and promissory note are prepared and, if needed, a third-party surety is drawn; and, the funds and title are transferred when the deal is agreed.
For commercial aircraft, more sophisticated financing is involved. Usually, these can be either secured lending, operating leasing, and finance leasing, and they are distinguished by considerations such as tax-deductible depreciation, interest, and operating costs that might cut the tax liability for all three parties involved: the operating airline, the lessor, and the financier.
An airline buying a plane can take a secured or unsecured loan, sometimes through a syndicate of banks, and usually including a security interest. Only an airline with long establishment and high equity, not to mention a steady cash flow, is likely to get an unsecured financing package.
An operating loan agreement involves short-term leasing; this is considered very attractive for startup air carriers or for established airlines looking to expand. They tend to last less than ten years and protect against obsolescence, and they are often engaged when airlines are considered credit-risky—as, for example, Aeroflot, the Russian airline, was considered when the Soviet Union collapsed in the early 1990s. Different countries impose different operating lease rules on aircraft and airlines; in the United States, for example, an operating lease is reported as an operating expense, while in Great Britain an operating lease can be capitalized on an airline’s balance sheet.
Finance or capital leasing is a long-term deal in which an airline is closer to actually owning a plane, but the lessor buys through a blend of debt and equity financing and leases it to the carrier, with the airline having an option to buy it outright when the term expires—somewhat similar to home rentals with options to buy.
Some aircraft financiers include the National Aircraft Finance Company, U.S. Aircraft Finance, AVFundSource.net, Warren West Aircraft Financing, Excel Credit, GE Capital, and Mile High Financial Corporation. A typical financing package begins with ten percent or more of the aircraft price down, fixed terms with interest rates tied to labor or prime rates, and some leasing options as well.