Aircraft Loan Documents: Knowing What To Expect Before You Sign On The Dotted Line

If you are financing the purchase of an aircraft, you know, or at least you should know, that the lender will have a number of documents for you to sign before it advances the funds. The loan documents typically associated with a basic aircraft finance transaction and required by a lender include a promissory note, aircraft security agreement, guaranty/pledge and authorization.

A promissory note contains the terms of the loan (e.g. amount, repayment schedule, interest rate etc.) and the borrower's promise to repay the loan according to those terms. It also provides the lender with remedies if the borrower does not fulfill its obligations under the promissory note or if something else happens that gives the lender a reasonable basis to believe that repayment of the loan may be in jeopardy.

The aircraft security agreement pledges the aircraft as security for the promissory note. If the borrower fails to repay the promissory note, the lender will have the right to take possession of the aircraft. Once it has regained possession, the lender is able to sell or otherwise dispose of the aircraft to recover as much money as it can to offset against the outstanding loan balance. If the lender is able to sell the aircraft for more than is owed, the excess is paid to the borrower. However, after the lender offsets the amount received from sale against the outstanding balance and the lender's costs/fees incurred in repossessing and selling the aircraft, it is unusual for an excess balance to exist.

For transactions in which the loan is being guaranteed by someone other than the borrower, that individual or business will need to execute a guaranty that obligates the guarantor to repay the loan in the event that the borrower defaults. If the borrower or any guarantor is a corporation or limited liability company, the lender will require that an appropriate official of the entity execute an authorization representing that the person executing the documents on behalf of the entity is authorized to sign and bind that entity.

Most lenders will have standard or form documents they use in aircraft finance transactions. However, depending upon the lender, the financial position of the borrower, the relationship of the borrower with the lender, and the amount of the loan, many of the terms in the loan documents may be negotiable. It never hurts to ask.  Similarly, it isn't a bad idea to have an aviation attorney review the documents on your behalf and negotiate any changes that may be required to protect your interests.

Aircraft loan transactions don't have to be complicated.  If you know what to expect and ask for assistance when needed, obtaining financing for your purchase of an aircraft should be as easy as signing on the dotted line.