Financing a jet: what the lender needs from your structure

Most business jets above a certain value are financed at some point — at acquisition, through a refinancing, or as part of a wider wealth-management relationship. Owners tend to treat financing as a separate exercise that begins once the aircraft and its structure are settled. Lenders see it the other way round. For a lender, the ownership structure, the register, the operator, the VAT and customs position and the records are not background: they are the collateral. A structure that works perfectly for the owner can be difficult, slow or expensive to finance if it was designed without the lender’s questions in mind.

This article sets out how aircraft lenders think, what they typically require, and how the structuring choices covered elsewhere in our insights affect financeability. It is written from the owner’s side of the table, to help owners and family offices anticipate what a lender will ask for and build a structure that answers it. Loan documentation is a specialist field; the points below are the structural ones that should be settled before the term sheet.

The lender’s question

An aircraft lender’s credit analysis has two parts: will the borrower pay, and if not, what can the lender recover from the asset? For most private-aviation lending, the borrower’s wealth carries much of the first part. The second part is where the aircraft and its structure come in, and it breaks down into practical questions. Can the lender establish a security interest that will be recognised wherever the aircraft is? Can it take control of the aircraft — physically, legally and operationally — if it needs to? Can it move the aircraft to a friendly jurisdiction and deregister it from its current register? Will anyone else’s claim rank ahead? And will the aircraft be worth what the lender expects when it sells it?

Each element of the security package, and each condition in the loan agreement, answers one of those questions. Understanding them makes the lender’s requirements predictable rather than arbitrary — and makes it possible to design a structure that satisfies them without unnecessary cost.

The security package

A typical business-jet facility is secured by a package of documents that, together, give the lender control over the asset and the vehicle that owns it.

Aircraft mortgage. A mortgage or equivalent security over the aircraft itself, registered on the national aircraft register where that register supports it, and on the International Registry where the Cape Town Convention applies.

Share pledge. A pledge over the shares of the owning SPV, so that the lender can, if necessary, take control of the company rather than the aircraft alone — often a faster route, because the aircraft does not have to change hands.

Assignments. Security over the owner’s rights under the insurance policies, any lease or management agreement, and the manufacturer’s and maintenance warranties, so that the lender receives the proceeds and benefits that protect the asset’s value.

Deregistration power. An irrevocable power allowing the lender to deregister and export the aircraft on enforcement — under the Cape Town framework, the IDERA described below.

Undertakings from third parties. Acknowledgements from the operator or manager that they hold the aircraft subject to the lender’s rights, will cooperate on enforcement, and will hand over the aircraft and its records.

Cape Town and the International Registry

The Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol were designed for exactly this problem: an asset that moves between legal systems. They create an international interest in an airframe and its engines, registered electronically on the International Registry, with priority generally determined by order of registration. Registration gives priority over later-registered interests and over unregistered ones, and gives the creditor a set of remedies recognised in all contracting states.

The Convention is widely adopted. The European Union itself acceded in 2009, in respect of the matters within its competence, and the registers most used in European business aviation — Malta, Ireland and the Isle of Man among them — operate within the Cape Town framework. Under the Protocol, the debtor can issue an Irrevocable De-registration and Export Request Authorisation (IDERA), recorded with the national registry, which allows the creditor on default to request deregistration and export of the aircraft without needing the debtor’s further cooperation.

For the owner, the practical point is that the choice of register matters to the lender. A register within the Cape Town framework, that records mortgages and IDERAs efficiently and has a track record with financiers, makes the aircraft easier and cheaper to finance. This is one of the factors set out in our comparison of Malta, the Isle of Man and Ireland, and it should be weighed alongside operational and customs considerations when the register is chosen.

Insurance for the lender

Insurance is the lender’s first line of protection against loss of the asset, and lenders specify it closely. They typically require hull cover for an agreed value at least equal to the loan, and liability cover at levels appropriate to the aircraft and its operations. The lender is named as loss payee for hull claims above an agreed threshold and as an additional insured under the liability cover, and the policy carries an endorsement protecting the lender’s interest — commonly including a breach-of-warranty provision, so that the lender remains covered even if the insured breaches a policy condition, together with notice of cancellation and waiver of subrogation against the lender.

These requirements interact with the management agreement and the operator structure: the insured parties must include whoever operates the aircraft, and the lender’s endorsement must survive changes of manager. Our article on management agreements covers how the insurance and liability provisions should fit together. Lenders will also want to know where the aircraft flies, because war-risk, sanctions and geographic exclusions in the policy can leave the asset uninsured in exactly the places where recovery would be hardest.

Operators, managers and liens

A lender’s security is only as good as its ability to get the aircraft back, and two practical obstacles are the operator and third-party liens. An operator or manager in possession of the aircraft — or holding its crew, records and operational approvals — can make enforcement slow even when the legal position is clear. That is why lenders ask the operator and manager to acknowledge the lender’s interest and commit to cooperate.

Liens are the harder problem. In several jurisdictions, unpaid airport charges, air-navigation charges and certain other debts can give the creditor — often a public authority — the right to detain the aircraft, sometimes in priority to the lender and sometimes for debts relating to other aircraft operated by the same operator. In the United Kingdom, for example, the Civil Aviation Act 1982 gives powers to detain aircraft for unpaid charges, including on a fleet-wide basis. Repairers may also have possessory liens for unpaid work. Lenders manage this by requiring the borrower to keep charges paid, by monitoring, and by understanding which operator’s debts could affect the aircraft — one more reason the identity of the operator matters.

Why lenders care about VAT and customs

To a lender, the aircraft’s VAT and customs position is not a tax matter; it is a collateral matter. An aircraft whose temporary-admission position has failed, or whose import VAT was never properly accounted for, carries a customs debt on its full value, and customs authorities have strong powers over goods in respect of which customs debts are owed. In the worst case, an unresolved customs or VAT problem can lead to the aircraft being detained, can complicate a sale on enforcement, and can make a buyer discount the price — all of which reduce what the lender recovers.

That is why diligent lenders now ask about the aircraft’s customs status and VAT history as part of credit approval, and why a clear, documented position — an aircraft properly imported with VAT accounted for, or properly under temporary admission with the evidence to show it — makes financing easier. Our articles on VAT-paid due diligence and temporary admission set out what that evidence looks like. For the borrower, the same documents that satisfy an inspector satisfy a credit committee.

Loan or lease?

Financing can take the form of a secured loan to the owning SPV, or of a lease in which the financier owns the aircraft and leases it to the user. Each has different legal, accounting and tax consequences. Under a finance lease or hire-purchase arrangement in which ownership is intended to pass to the lessee, the transaction can be treated for VAT as a supply of goods at the outset; under an operating lease, it is a supply of services — the hire of a means of transport — over the lease term. The VAT treatment, the identity of the owner for registration and customs purposes, and the party that can recover input VAT all follow from that choice.

Leases also change the customs picture: where the financier is the registered owner, the conditions that refer to the person in whose name the aircraft is registered — for example under temporary admission — apply to the financier, not the user. A lease structure that works commercially but puts an EU-established financier on the registration of an aircraft relying on temporary admission can undermine the relief. These questions should be analysed with the financier before the structure is fixed, not after the documents are drafted.

Preparing a financeable structure

Owners who expect to finance an aircraft — now or later — can make the process faster and cheaper by building the lender’s requirements into the structure from the start. That means holding the aircraft in a clean, single-purpose SPV in a jurisdiction where share pledges are straightforward to take and enforce; choosing a register within the Cape Town framework that records mortgages and IDERAs efficiently; settling the operator and manager, and confirming they will sign the lender’s acknowledgements; arranging insurance through a broker familiar with lender endorsements; resolving and documenting the VAT and customs position; and keeping complete technical records, because the records are a large part of the value the lender is relying on.

A structure assembled that way gives the lender a short list of questions with clear answers. It shortens due diligence, reduces conditions precedent, and gives the borrower leverage on pricing and terms. A structure assembled without the lender in mind can usually still be financed — but often only after restructuring that would have been cheaper to do at the outset.

Mistakes we see

The financing mistakes are mostly about sequence. Owners fix the register for reasons unrelated to finance, then discover the lender prefers another. They hold the aircraft personally or in a multi-purpose company, then have to move it into an SPV before a share pledge can be taken. They sign a management agreement without the cooperation provisions a lender needs. They leave the VAT and customs position unresolved, so that credit approval stalls on questions the owner cannot answer. And they let records slip, so that the asset the lender is valuing is worth less than it appears.

None of these prevents financing. All of them make it slower and more expensive, and all are avoided by asking, at the structuring stage, the questions a lender will ask later.

Key terms

Frequently asked

Last reviewed 19 October 2026. This article is general information, not legal, tax or financial advice; every financing turns on its own terms.