What Are The Legal Issues When Applying For An Airplane Loan?


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Question:

My partner and I own a small jet charter airline business, which he started several years ago. We are now seeking to add additional aircraft and need to know what the laws are regarding the purchase of new and used aircraft and if there are any special laws regarding the financing.

 

Answer:

The first consideration will be to determine what type of plane you are planning to purchase and how many passengers will need to be accommodated.  Additionally, you’ll need to take into account the destinations you will be traveling to and from.  Some of your options can range from purchasing a light jet, medium-sized jet, or a heavy jet, which is best for long-range flights that may include international destinations.  You can purchase aircraft directly from the manufacturer or use a dealer or broker.

A larger issue you will have to deal with is financing the transaction.  If you seek to obtain an airplane loan, there are three key loan documents you will encounter.  The Loan Agreement is the primary document that sets out all of the terms of the loan including amount, interest rate, and repayment terms.  The Security Agreement, which is the lender’s legally enforceable promise that you will repay the loan.  This document also creates a lien in favor of the bank permitting foreclosure against the aircraft.  It may also contain instructions on how the aircraft is to be maintained and operated.  The Guaranty document, which stipulates if you decide to form a separate entity to own your aircraft, the lender may require and your partner to sign a guarantee making you personally responsible for the repayment of the note.  In certain cases, the bank may want the support of a guaranty from a corporate affiliate or an individual.

Whatever type of aircraft you wish to purchase, it’s always wise to seek legal counsel when acquiring a large asset that may have many complicated legal issues.

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