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Senior Secured Aircraft Finance Advisory

Overview of Senior Secured Aircraft Finance

What Is Senior Secured Aircraft Finance?

Senior secured aircraft finance is a popular form of lending that enables the borrower to borrow funds using their aircraft as the primary security. Borrowers will generally offer a first-ranking security over their new or existing aircraft in exchange for the borrowed funds. Senior secured aircraft finance is regarded as the lowest-risk form of aircraft finance and is positioned at the top of the capital stack. Senior secured aircraft finance is generally offered by a mix of commercial banks, specialist aviation lenders, institutional lenders, and private credit funds.
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How Does Senior Secured Aircraft Finance Work?

The borrower, which may be a commercial operator or a private individual, will offer a lender a mortgage over their aircraft in exchange for upfront funds. The loan will generally be repaid over a fixed term, which may include amortisation. The cost of funds will depend on several factors, including the age of the aircraft, the type of aircraft, the borrower’s background and financial standing, and the use of the aircraft. It is important to note that older aircraft (20–25 years) are generally more difficult and expensive to finance. Senior secured aircraft finance can be used for aircraft acquisitions, aircraft refinancing, and debt restructuring.

Where Senior Secured Debt Sits in the Aviation Capital Structure

Senior secured debt generally sits at the very top of the aviation capital structure and can be compared to mortgage finance. This makes it one of the more stable and predictable forms of aviation finance. Moreover, given the lower risk associated with this form of aviation finance, it is offered by a range of lenders, making it easier to arrange than other forms of aviation finance.

Typical Use Cases for Senior Secured Aircraft Finance

Fleet Expansion and Aircraft Acquisition

One of the most common uses of senior secured aircraft finance is for the acquisition of aircraft, for personal use or commercial use. While some borrowers prefer to purchase aircraft in cash, it is far more common for purchases to use some form of debt, and senior secured finance is the most common form of finance used for aircraft purchases.

Refinancing Existing Aircraft Debt

Another common use of senior secured aircraft finance is to refinance an existing lender. While this is very common, it is important to note that some lenders will not finance older aircraft (20–25 years old), as they are generally regarded as higher-risk assets.

Balance Sheet Optimisation for
Aircraft Owners and Operators

Balance sheet optimisation applies predominantly to commercial aircraft operators and involves the use of debt within their operating company in order to enhance profitability.

Aircraft Types and Assets Commonly Financed

Narrowbody and Widebody
Commercial Aircraft

Narrowbody jets are generally seen as lower risk than widebody or niche aircraft, making them more attractive to potential lenders. Their lower risk profile also enables narrowbody jets to access higher LTVs and lower rates.

Business Jets and Specialised
Aviation Assets

Aircraft used commercially for chartered or business purposes are viewed differently from private-use aircraft. Given that the market for business jets is smaller than that for private-use jets, they generally lose value more quickly. With this in mind, lenders view these jets as higher risk, and the LTVs and rates offered are likely to reflect this.

Considerations Around Aircraft Age,
Condition and Liquidity

The age, condition, and liquidity of an aircraft are all heavily scrutinised by lenders and are likely to have a material impact on the loan’s pricing. The age and condition of a jet will have a direct impact on its liquidity. Younger, well-maintained aircraft will be much more liquid than older aircraft and are likely to have cheaper access to finance than their older counterparts.

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How Silver Oak Capital Can Help

  • Access to Aviation Lenders

    Our vast lender network enables us to source the best loan products from the best lenders in the market, providing our clients with cost-effective access to flexible loan products.

  • Market Knowledge and Aviation Lending Experience

    Silver Oak Capital has an in-depth understanding of the aviation debt market in the UK, enabling us to advise our clients on the most suitable solutions and giving them peace of mind.

  • Client Satisfaction

    Client satisfaction is at the heart of what we do, so when we provide advice to our clients, we ensure that it is correct and tailored to their situation. In doing so, we ensure that our clients have access to independent, situation-specific, sound advice, ensuring they are happy with their aviation finance.

FAQs

The loan-to-value ratios associated with senior secured aircraft finance generally differ depending on the aircraft’s age. For younger aircraft (0–5 years old), lenders may be prepared to offer up to 85% of the aircraft’s value. For older aircraft (12–20 years old), lenders will be much more cautious and will probably cap LTVs at 40–55%.
Yes, this is one of the most common uses of senior secured aircraft finance. Given that these loans generally have a term of between 3 and 12 years, it is likely that any single aircraft will need to be refinanced at least once during its lifetime.

The time taken to arrange a senior secured aircraft loan can differ from transaction to transaction. For a simple transaction in a familiar jurisdiction, aircraft finance can take 4–8 weeks. For more complex transactions, we would expect the timeline to be anywhere between 8–12 weeks.

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