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Tips For Reviewing A Lender’s Term Sheet When Financing Your Company’s Aircraft

By May 18, 2022August 30th, 2022No Comments
tips for reviewing a lenders term sheet

Executive Summary

Below is an article that Michelle Wade first published on titled Tips for Reviewing a Lender’s Term Sheet When Financing Your Company’s Aircraft

Article – Tips For Reviewing A Lender’s Term Sheet When Financing Your Company’s Aircraft

So, your company is buying a private aircraft and will finance the purchase, and several lenders sent term sheets. Beyond comparing interest rates, what considerations do you need to keep in mind when reviewing a term sheet for a private jet loan?

As a private jet lawyer, I have a few recommendations:

1. Timing

It is important to start looking at financing options as soon as the business begins looking at private planes because aircraft purchase agreements do not contain financing contingency clauses. Also, when reviewing a financing term sheet, ask these questions to ensure you understand the timing parameters:

• Have the parties signed the purchase agreement?

• Has the aircraft broker estimated when you, the buyer, will be required to close on the purchase of the plane under the terms of the purchase agreement?

• Is your company able to quickly provide all the due diligence information the selected lender will require? When will the underwriting committee next meet to consider approving this loan?

• Will the lender provide the initial draft of the loan documents in time for company personnel and legal counsel to perform a meaningful review and negotiate crucial points?

• Does your company require this financing to close on the purchase of the aircraft, or does the company have the ability to pay cash at closing and finalize the financing after closing?

2. Economic Terms

Many lenders will not finance an older aircraft, so if you need financing to purchase the aircraft, you’ll need to make sure at least one lender will finance the make and model you want to purchase before signing the purchase agreement. Does the maturity of the loan match the borrower’s plan for ownership and operation of the aircraft?

You should also be aware of any required loan-to-value ratio and whether you will be required to make additional payments if the market value decreases more than anticipated in any year. You can consult an aircraft broker or an aircraft appraiser to discuss historical valuations and future projections of valuations for your preferred aircraft.

3. Fees

Did the lender provide an estimate of the fees you are to pay for items such as the Uniform Commercial Code and Federal Aviation Administration filings, lender’s counsel, lender’s FAA counsel and documentation and closing costs? Does the lender require your legal counsel to issue a legal opinion? If so, that item alone can add time and cost to the loan process.

Additional fees you should review include:

• Are there any prepayment fees if you pay the loan prior to maturity?

• Do any prepayment fees decrease each year for the initial years of the loan?

• Is the lender required to provide you with notice and an opportunity to pay before you incur a late charge or are in default due to late payment?

4. Registration

Does the lender know how the aircraft will be owned? If the aircraft will be registered in the name of an owner trustee or a new sole purpose entity, the lender needs to know the name of the selected owner trustee or new entity. Without this information, the initial set of loan documents might not fit the structure, and time and money will be spent revising them.

5. Usage

Does the lender understand how the aircraft will be operated, including whether the aircraft will be leased to related parties, unrelated entities or a charter company to be flown under the Part 135 charter regulations?

A lender may limit the number of hours flown annually or hours flown by a lessee. The lender may also require that any lease be preapproved by the lender and that you obtain the lender’s approval before transferring the aircraft to a different charter company.

It’s important to keep terms like these in mind because the lender’s approval requirements could seem acceptable at the outset but become unacceptable if your business wants to lease the aircraft to a charter company or dry-lease the aircraft to an unrelated entity.

Consider what’s missing from the lender’s term sheet

Not all important items will always be addressed in a term sheet, so think about my tips above and whether there are any other issues particularly significant to your company, and discuss them with the lender. For example, you might need to discuss:

• Whether it is a default under the loan if a majority of the ownership or voting interest in the aircraft owning entity is transferred without the prior approval of the lender.

• Whether the aircraft loan cross-defaults to other loans.

• Whether there are financial covenants the borrower or guarantor must satisfy on an ongoing basis.

• Whether the lender’s prior approval is required before changing the aircraft’s primary hangar location.

• Whether the aircraft’s insurance policies satisfy the lender’s insurance requirements.

• If the aircraft will be operated internationally, whether the form of financing will have any impact on planned operations.

Finally, ensure each lender receives the same information so that the term sheets are all based on the same assumptions about the ownership and operation of the aircraft.


Start working with aviation counsel and the tax advisor early in the aircraft acquisition process to provide complete information to prospective lenders. Lender term sheets based on accurate information on the planned ownership, registration and usage of the aircraft can help avoid future unpleasant surprises.

The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.

Michelle M. Wade is a Partner with the aviation law firm of Jetstream Aviation Law, P.A. and counsel clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the US Federal Aviation Regulations. Jetstream Aviation Law can be found at Michelle Wade (

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