Aircraft Finance Glossary.

Acquisition loan

A secured loan used to buy an aircraft, with the aircraft as collateral. The borrower owns the aircraft from day one.

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Advance rate

The share of an aircraft's value a lender will lend or a lessor will pay. Also called loan-to-value when expressed for a loan.

Amortization

Paying a loan down through scheduled payments that cover interest and principal over the term.

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Appraisal

An independent estimate of an aircraft's value based on its make, model, age, total time, engine time, equipment, damage history and market data.

Balloon payment

A lump sum due at the end of a loan, left over because the scheduled payments did not fully pay down the balance. It lowers the monthly payment.

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Bonus depreciation

A U.S. tax provision that can let a business deduct a large share of a qualifying asset's cost in the first year. Eligibility for aircraft depends on use and current law, so confirm with a tax advisor.

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Cape Town Convention

An international treaty that created the International Registry for recording interests in aircraft and certain engines and helicopters, giving lenders and lessors clearer cross-border protection.

Cash-out refinance

A refinance that borrows more than the current loan balance and pays the difference to the owner, using equity in the aircraft.

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Damage history

Records of past accidents or incidents and the repairs that followed. Significant damage history usually lowers an aircraft's value and can affect financing.

Down payment

The cash a buyer puts toward the aircraft price. The rest is financed.

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Dry lease

A lease of the aircraft only, without crew. The lessee takes operational control and must operate under its own authority.

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Escrow

A neutral third party that holds funds and documents during an aircraft purchase and releases them when closing conditions are met, including title and registration filings.

FAA Aircraft Registry

The FAA office that registers U.S. civil aircraft and records liens, leases and other documents affecting title.

Fair market value purchase option

A lease term that lets the lessee buy the aircraft at the end of the lease at its market value at that time.

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Finance lease

A lease designed to end in ownership, with most of the risks and rewards of ownership on the lessee. Also called a capital lease.

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Fleet facility

A financing line approved once and drawn on as an operator adds aircraft over a set period.

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Hourly maintenance program

A pay-per-flight-hour program, common for turbine engines, that covers scheduled and often unscheduled maintenance. Enrollment can support value and financing.

International Registry

The electronic registry created under the Cape Town Convention where interests in covered aircraft objects are registered.

Lease rate factor

The monthly lease payment expressed as a percentage of the aircraft's cost to the lessor.

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Leaseback (to a flight school)

An arrangement where an aircraft owner leases their aircraft to a flight school or club to offset ownership costs. Different from a sale-leaseback.

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Lien

A recorded security interest that gives a lender rights to the aircraft if the loan is not repaid.

Loan-to-value

The loan amount divided by the aircraft's value. Lower loan-to-value means more equity and usually better terms.

Logbooks

The aircraft, engine and propeller records documenting maintenance, inspections, repairs and modifications. Complete logbooks support value and financing.

Maintenance reserves

Monthly or hourly payments a lessee makes to a lessor to fund future major maintenance such as engine overhauls.

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Operating lease

A lease where the lessee uses the aircraft for a set term and returns it. The lessor owns the aircraft and carries its residual value risk.

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Part 135

The FAA rules for commuter and on-demand operations, including most charter flying.

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Part 141

The FAA rules for certificated pilot schools with approved training courses.

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Part 61

The FAA rules for pilot certification. Many flight schools train under Part 61 without a Part 141 school certificate.

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Part 91

The FAA general operating and flight rules, which cover private and corporate flying that is not for hire.

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Personal guarantee

A promise by an individual to repay a business's loan or lease if the business does not.

Pre-buy inspection

An inspection by an independent mechanic before purchase to find problems that affect value, safety or financing.

Residual value

What an aircraft is expected to be worth at the end of a loan or lease term.

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Return conditions

The condition an aircraft must be in when returned at the end of a lease, often covering engine time, inspections and repairs.

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Sale-leaseback

Selling an owned aircraft to a lessor and leasing it straight back, releasing equity as cash while the aircraft keeps flying.

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SMOH

Since major overhaul. The hours an engine has run since its last major overhaul, a key driver of value.

TBO

Time between overhauls. The manufacturer's recommended engine hours before a major overhaul.

Total time

The total hours an airframe has flown since manufacture, often abbreviated TTAF.

Truth-in-leasing

FAA rules (14 CFR 91.23) requiring certain leases of large U.S. civil aircraft to include a clause identifying who has operational control.

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Utilization

How many hours an aircraft flies over a period. Lenders and lessors use it to judge revenue and wear.

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Wet lease

A lease of an aircraft with crew and often maintenance and insurance. The lessor keeps operational control. Also called ACMI.

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