The following Banking & Finance guidance note Produced in partnership with Norton Rose Fulbright provides comprehensive and up to date legal information covering:
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: 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.
These may be summarised as follows:
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 value of an aircraft during the term of the financing with a certain degree of reliability. The aircraft itself is often seen as being sufficiently valuable security in its own right without the lenders needing to obtain additional rights over, eg, its earnings or any other form of credit enhancement.
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