Asset-Backed Aircraft Loans: LTV and Collateral Decoded

Optimising aircraft financing with robust collateral and tailored loan-to-value structures.

Asset-backed aircraft loans represent a cornerstone of aviation finance, providing capital secured directly by the underlying aircraft. For sophisticated buyers, comprehending the interplay of Loan-to-Value (LTV) ratios and the efficacy of various collateral structures is crucial for securing competitive funding.

How it works

At its core, an asset-backed aircraft loan functions similarly to a traditional mortgage. The aircraft itself serves as the primary collateral, mitigating risk for the lender and often translating into more favourable terms for the borrower. Security perfection typically involves registering a mortgage or charge over the aircraft. In jurisdictions adhering to the Cape Town Convention, this process is streamlined and offers enhanced creditor protections, often leading to lower financing costs. For example, registering a charge on a Gulfstream G650's tail number in the International Registry under the Cape Town Convention ensures a robust, internationally recognised security interest.

LTV ratios are fundamental. This metric, calculated as the loan amount divided by the aircraft's appraised value, directly influences the lender's risk exposure. A lower LTV signifies greater equity contribution from the borrower and, consequently, lower risk for the lender. Initial LTVs on new aircraft often range from 70% to 80%, while pre-owned aircraft typically see 60% to 75%, depending on age and condition.

Typical terms in 2026

Financing terms are highly bespoke, reflecting the specific asset, borrower creditworthiness, and prevailing market conditions. As of 2026, expect tenor to range from 5 to 10 years for corporate jets and up to 12 years for newer, larger commercial aircraft. Interest rates generally float, indexed to SOFR (or a suitable regional equivalent), plus a margin of 200 to 450 basis points. Depreciation schedules are critical for calculating residual values and managing future refinancing. A typical business jet might see depreciation of 4-6% annually for the first five years, stabilising thereafter.

| Aircraft Type | Typical LTV Range | Tenor (Years) |

|---------------|-------------------|---------------|

| New Business Jet | 70% - 80% | 7 - 10 |

| Used Business Jet | 60% - 75% | 5 - 8 |

| New Airliner | 75% - 85% | 10 - 12 |

| Used Airliner | 65% - 80% | 8 - 10 |

Who it suits

This financing structure is ideal for corporate flight departments, high-net-worth individuals, and airlines seeking to acquire aircraft without fully depleting their cash reserves. It particularly benefits those with strong balance sheets and a clear operational need for the aircraft, who wish to retain asset ownership while leveraging its value for competitive financing. Entities operating under specific tax regimes may also find ownership advantageous for depreciation benefits.

Pitfalls to avoid

Careful attention must be paid to the aircraft's appraisal methodology, ensuring it reflects current market realities and future residual value projections. Over-leveraging, particularly on assets with rapid depreciation curves or specialist configurations, can lead to negative equity positions. Currency fluctuations, especially for cross-border transactions, introduce additional risk. Furthermore, ensure all collateral registrations, including any tail-specific security, are meticulously completed to avoid future perfection challenges.

How Mega Aviation helps

Mega Aviation provides unparalleled insight into structuring optimal asset-backed aircraft loans. We assist clients in navigating the complexities of LTV calculations, collateral perfection – including mortgages on specific registries like Cape Town – and term negotiation. Through our extensive network, we introduce clients to vetted lenders and lessors offering competitive financing solutions, ensuring alignment with their strategic objectives. Please note, Mega Aviation operates purely as an advisory and introduction service and does not act as a regulated financial adviser.