Cash, debt or lease
Paying cash is simplest and it is what most first-time buyers do below about five million dollars. Above that, debt is normal. Not because buyers lack the money, but because an aircraft is a depreciating asset and tying capital into it carries an opportunity cost that a loan at six or seven per cent often beats.
An operating lease moves the residual value risk to the lessor. You pay for the use of the aircraft over a fixed term and hand it back. It costs more per year and it removes the biggest unknown in ownership, which is what the thing will be worth when you are finished with it.
What a lender requires
Typically fifteen to thirty per cent down, a first priority mortgage on the aircraft, an assignment of the insurance, and a personal or corporate guarantee. The aircraft is the collateral, and very few lenders will lend against it alone.
They will also have a view on the aircraft itself. Age limits are common. Many lenders will not finance an airframe that would be over twenty years old at maturity, and out of production types attract shorter terms and lower advance rates because the lender is thinking about how fast they could sell it.
Get financing committed, not indicative, before you sign a letter of intent. An indicative term sheet is a marketing document.
Rates, terms and the balloon payment
Pricing is usually quoted over a floating benchmark plus a margin, or as a fixed rate swapped from it. Margins of two to three and a half per cent over the benchmark are ordinary for a well structured deal with a strong borrower.
The structure that catches first-time buyers is the split between term and amortisation. A loan can amortise as though it were being repaid over twenty years, which keeps the monthly payment manageable, but mature after ten. At maturity the remaining balance falls due in one payment. That balance is the balloon, and it is usually a large share of the original loan.
This is not a trap. It is how the market works, and it is perfectly manageable once it is planned for. The two normal outcomes are refinancing the balloon or selling the aircraft to clear it. The version that goes wrong is discovering it in year nine.
Ownership structures, registries and tax
Ownership is rarely in a personal name. A company, a trust or a special purpose vehicle is normal, and the right answer depends on where the aircraft is registered, where it is based and who flies in it.
Non-US persons frequently register on the US register through an owner trust, which is an established and entirely legitimate structure. European owners often look at the Isle of Man or Malta for how they handle importation and for the standing of their registries with lenders.
Value added tax is the item most likely to produce an unwelcome surprise. Importing an aircraft into the European Union triggers VAT on the full value unless a specific relief or deferral applies. The position depends on the owner, the use, the country of importation and whether any commercial operation is involved. Settle it with a specialist before the aircraft moves, not afterwards.
We are not tax advisers and no broker is. Take the structure to a specialist in the relevant jurisdiction. That advice costs a rounding error against the cost of getting it wrong.