Introductory guide to aviation finance

Produced in partnership with Norton Rose Fulbright

Practice notes

Introductory guide to aviation finance

Produced in partnership with Norton Rose Fulbright

Practice notes

The essence of aviation finance is that a lender will advance money to a borrower for the purposes of financing (or refinancing) its acquisition of an aircraft. In the event of the borrower defaulting under the loan agreement, the documentation and the legal structure of the transaction is intended to permit the lender to have prioritised access to the aircraft (or to its sale proceeds) to recover amounts outstanding under the financing.

This may be seen as a classic form of asset finance (see Practice Note: Introductory guide to asset finance): the lender is taking Credit risk on the borrower supported by security over the aircraft. However, aviation finance has developed certain specialised legal and structural specificities which set it apart from other types of finance.

Specificities of aviation finance

These may be summarised as follows:

Future value

Aircraft are considered to maintain their future value relatively well compared to other assets. Much depends on the actual model of the aircraft, and of the engines installed on it, but generally lenders are able to predict the likely market

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Jurisdiction(s):

United Kingdom

Key definition:

Credit risk definition

What does Credit risk mean?

The risk that a bond issuer will default on their obligations. A function of the credit quality of the issuer. Government bonds of developed countries are assumed to have no credit risk. Credit risk is usually associated with corporate bonds.

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