19 Oct 2026

The New Aviation Credit Market: Why Private Capital Is Moving Into Aircraft Finance

Key Takeaways

• Aviation finance is attracting a wider mix of lenders, including banks, private-credit funds, asset managers and specialist aviation investors.
• Private credit is most useful when borrowers need faster execution, more flexible structures or financing outside a standard bank loan.
• Aircraft can work well as collateral because they are high-value assets with established leasing and resale markets.
• Lenders assess both the borrower’s ability to repay and the value of the aircraft if repayment fails.
• Loan-to-value, maintenance condition, technical records and aircraft liquidity all influence lending decisions.
• Private capital is not replacing banks; it is becoming another established source of aircraft financing.

Aircraft cost a lot of money, which means that most airlines and leasing companies do not finance them with their own capital. Debt has always played an important role in financing the aviation industry, but the range of financial institutions willing to lend is evolving. Banks still play a decisive role, but private credit firms and asset managers are becoming more involved as time goes by.

That matters because aircraft transactions rarely follow one standard pattern. One airline may need long-term financing for a delivery, another borrower may need temporary funding, while a lessor may need to refinance debt before it matures. Private capital provides another route when conventional funding does not fully match the timing or structure of the transaction.
 

The change is therefore not a simple shift from banks to private credit. Aviation finance is becoming a broader market in which different forms of capital are used for different transactions.

 

Why Is Private Capital Becoming More Important in Aviation Finance?

Private capital is being used more as not every aircraft financing need will fall into a lender's policy. An airline may require funds promptly, a lessor may convert an old aircraft, or a borrower may wish for a repayment structure different from that usually required.

Banks can still finance many of these transactions, but they operate within credit limits covering borrower strength, aircraft type, jurisdiction and regulatory capital. Private lenders can sometimes assess the same deal more individually, focusing on the aircraft, expected cash flow and likely recovery value.

 

Private credit does not automatically provide better financing. Its value lies in supporting transactions that need a different structure, faster execution or more specialised analysis.

 

Why Can Private Lenders Fill Financing Gaps?

A financing gap occurs when funding is needed, but the timing or structure of the transaction does not coincide with the available funding. This occurs in situations where an aircraft acquisition must take place prior to receiving permanent financing.

Temporary or customised funding can be provided by a private lender so that the transaction can occur and the borrower can repay the debt at a later stage. The same strategy can be used for delivery of aircraft, portfolios of engines, acquisitions and maturing debt.

The growth of private credit in aviation reflects this need for financing that can be structured around the transaction.

 

How Does Aircraft Lending Work?

In essence, plane lending operates according to a principle that is well-known to us. Funds are supplied by the lender, while the borrower is obliged to pay them back together with interest over a specific period of time. The aeroplane is normally considered the collateral used for the loan.

The lender’s preferred outcome is repayment from the borrower. The aircraft becomes important if repayment fails because, depending on the legal structure, it can provide another route for recovering the outstanding debt.

 

How Are Aircraft Loans Structured?

The amount a lender is willing to provide depends on both the borrower and the aircraft. Lenders consider borrower strength, expected cash flow, aircraft value, maintenance condition and how easily the asset could be sold or leased again.

A key measure is loan-to-value, or LTV:

LTV = Loan Amount ÷ Aircraft Value × 100

For example, if an aircraft is worth £50 million and the lender provides £35 million:

£35 million ÷ £50 million × 100 = 70% LTV

The borrower must fund the remaining £15 million from its own capital or another source.

 

A loan may also be described as senior secured. Senior means the lender ranks ahead of more junior creditors, while secured means the debt is backed by specific assets such as the aircraft or engines.

 

What Makes Direct Lending Different?

Direct lending refers to a situation where the lender communicates directly with the borrower for financing instead of investing through a publicly listed bond. Hence, the facility can be arranged around a particular plane, a number of aircraft, engines, and/or any other requirement of a similar nature.

Flexibility is the advantage here. The disadvantage of working with private lenders is the cost: since direct lending is much more complicated and less liquid than traditional banking, private lenders expect much higher returns.

 

Why Are Aircraft Attractive Collateral for Private Credit Investors?

Aeroplanes may be considered appropriate for secured loans due to the fact that they are high-grade physical objects that have serial numbers, ownership documents and a tightly recorded history of respective maintenance. Furthermore, other aeroplane models created on a commercial basis have recognisable global leasing and resale markets.

That gives the lender a potential recovery route if the original borrower experiences financial difficulty. However, two aircraft of the same model and age can still have very different lending values because of engine condition, maintenance status, records or configuration.

 

How Do Aircraft Value, Liquidity and Maintenance Affect Lending Decisions?

Aircraft liquidity refers to how fast the plane can be sold or leased again without any long delays. In general terms, a narrowbody aircraft is usually more liquid than a specialised plane with a limited global fleet.

Maintenance condition matters just as much. An aircraft with recently maintained engines may be more attractive collateral than a similar aircraft approaching expensive engine shop visits.
 

This is where aircraft valuation becomes directly relevant. The lender needs to understand not only the aircraft’s value today, but also how that value may change during the loan.
 

Why Does Loan-to-Value Matter?

The LTV ratio provides the lender with an easy idea of how much of the loan is backed by the value of the asset. A lower ratio implies that the value of the plane can decrease more than with higher ratios before the loan becomes vulnerable.

Using the earlier example, a £35 million loan against a £50 million aircraft starts at 70% LTV. If the aircraft later falls to £45 million and the loan balance remains unchanged:

£35 million ÷ £45 million × 100 = 77.8% LTV

The aircraft is still worth more than the loan, but the margin of protection has narrowed.

Lenders therefore consider LTV alongside several other factors:

• Aircraft liquidity: Widely traded aircraft are generally easier to remarket.
• Maintenance condition: Upcoming work can reduce effective collateral value.
• Borrower strength: Stronger borrowers may support a different lending profile.
• Loan maturity: Longer loans create more exposure to future value changes.
• Residual value: The lender needs confidence that sufficient value will remain later.

LTV is useful, but it is not a complete measure of credit quality. The lender also needs to understand how realistic the aircraft valuation is and how quickly that value could be recovered.
 

Where Can Private Capital Fit Into the Aircraft Financing Lifecycle?

Aircraft may need financing before delivery, at acquisition, during operation or later when existing debt matures. Private lenders can participate at most of these stages.
 

The aircraft delivery financing process shows why one aircraft may require several types of capital during its commercial life.

 

How Do Bridge Financing and Aircraft Refinancing Work?

Refinancing of aeroplanes is the process of getting a new financing source for an already existing one. A leasing company can own an aeroplane that has a long-term lease but has an old acquisition loan that nears its term.

A new lender can repay the old facility and provide replacement financing that better matches the remaining lease period. Bridge financing works differently because it is temporary, often allowing an acquisition to close before cheaper long-term financing is arranged.

 

When Can Private Lending Be More Useful Than Bank Debt?

Private lending is most useful when flexibility has clear commercial value.

• Time-sensitive acquisitions: The aircraft must be purchased within a limited window.
• Older or specialised aircraft: The asset remains useful but falls outside a bank’s usual policy.
• Temporary funding: Permanent financing is expected later, but money is needed now.
• Complex portfolios: Several aircraft or engines need to be financed together.
• Aircraft refinancing: Existing debt matures before the owner intends to sell the asset.

Private lending is therefore not necessarily chosen because it is cheaper. The decision depends on whether the additional cost is justified by the commercial opportunity the financing makes possible.

 

What Risks Do Private Aviation Lenders Need to Assess?

The use of aircraft as collateral can provide lenders with a level of security, but does not necessarily protect them against a bad transaction. While an expensive aircraft may be sufficient for mortgage purposes in the eyes of the lenders, a case in which the borrower has substantial liabilities, or where the assumptions behind the funding are not realistic concerning aircraft valuations in the future, may not protect them.

Aircraft credit therefore requires two assessments at the same time: can the borrower repay, and can the aircraft support the debt if repayment fails?
 

How Do Airline Credit and Counterparty Risk Affect the Loan?

The credit risk of an airline refers to the possibility that it may not be able to meet its obligations, like servicing its debt and rentals of its fleet. To minimise their own risk, lenders study the levels of liquidity, profitability, debt, and future commitments of the airline.

If the borrower is an aircraft lessor, the lender may also examine the airline leasing the underlying aircraft because those rental payments support the lessor’s ability to service its debt.
 

This is why airline credit risk needs to be considered alongside aircraft value.

 

What Happens if the Borrower Defaults?

In case of default, a borrower is unable to satisfy an essential condition of the loan. The lender may be able to take back the aircraft and sell or lease it out, depending on the financing documents and relevant laws.

Recovery, however, involves more than taking possession. The aircraft may need maintenance, records may require review, the cabin may need changes, and the asset may remain idle while a new operator is found.

 

The key question is therefore not simply whether the aircraft can be recovered, but how much cash the lender can realistically recover after costs and delays.

 

What Does the Growth of Aviation Credit Mean for Airlines and Lessors?

The broadening of credit markets affords more financing options to airlines and lessors. Airlines can compare financing options from banks, leasing and private capital, while lessors can make use of private credit for purchases, engines, and portfolio facilities.

This does not mean every borrower will use private credit. It means another source of capital is available when conventional financing does not fully fit the transaction, which can improve flexibility and reduce dependence on any one funding channel.

 

Why Does Higher Flexibility Usually Cost More?

Private lending tends to cost more because flexibility is valuable economically. Lenders that are willing to take quick action, finance a complex asset or build the loan around unusual cash flow patterns expect higher returns.

The borrower should therefore compare the financing cost with the value created by completing the transaction. The relevant question is not simply whether the debt is cheaper, but whether access to that capital creates enough commercial value to justify the additional cost.

 

Why Private Capital Is Becoming a Permanent Part of Aviation Finance

It’s improbable for private credit to take the place of traditional aviation finance. It is not even required to. Banks are still critical, aircraft leasing companies are still providing access, and there are capital markets for larger borrowers.

Private capital adds another source of funding where speed, flexibility or specialist asset knowledge matters. Aircraft are well suited to this approach because they can be inspected, valued, leased, sold and, in many cases, transferred between operators.

It's important for the lender to have disciplined credit analysis, oil tanker values, solid maintenance history, suitable legal collateral, and a viable recovery plan. Since the airlines and the leasing companies need considerable investment, private credit is becoming a more established area of aviation finance.

 

FAQs

What is private credit in aviation?

Private credit is debt provided directly by non-bank investors to airlines, lessors or other aviation businesses.

 

What is aircraft lending?

Aircraft lending is financing in which an aircraft or related aviation asset supports the lender’s loan.

 

What does LTV mean in aircraft financing?

Loan-to-value compares the amount borrowed with the value of the aircraft securing the loan.

 

What is aircraft refinancing?

Aircraft refinancing replaces an existing aircraft financing facility with a new loan.

 

Is private credit replacing bank aviation finance?

No, it is adding another financing option alongside banks, lessors and capital markets.