Private credit's growing role in aviation finance

The aviation finance market is entering a period of significant transformation. 

More than 19,000 to 21,000 new aircraft globally are expected to require new financing over the next decade, with estimates suggesting that US$300+ billion of aviation assets will require capital solutions, according to Ogier's recent report, Aviation SPVs and the Aircraft Leasing Market: Trends, Analysis and Future Growth, which draws on data from Atlantic Star Analytics. 

At the same time, traditional lenders have become more selective, driven by regulatory capital requirements, concentration limits, portfolio management considerations and wider macroeconomic uncertainty. 

Alternative capital is reshaping aircraft finance 

In this context, private credit has become one of the most important sources of alternative capital for aircraft lessors, asset managers and airlines.  

Private credit has moved from a niche option for opportunistic transactions to a mainstream component of the aviation funding landscape. Direct lending funds, private debt managers, insurance investors and specialist aviation credit platforms are deploying significant capital into aviation assets, creating new opportunities for market participants seeking greater flexibility and certainty of execution. 

Banks versus private credit lenders 

Traditional aviation lenders continue to play a central role in the market. Relationship banks, export credit agencies and syndicated lending groups remain particularly active in financing established airlines, large-scale portfolio acquisitions and investment-grade leasing platforms. These institutions typically provide competitively priced debt, often with longer track records in aviation and extensive experience of aircraft collateral performance across different economic cycles. 

However, the economic and regulatory environment for banks has changed significantly. Capital adequacy requirements, evolving risk-weighting frameworks and internal sector concentration limits can limit lending appetite, particularly for newer leasing platforms, secondary assets, older aircraft or more complex structures. Credit committees often require extensive due diligence processes, resulting in longer execution timetables and more conservative structuring requirements. 

Private credit lenders approach the market differently. Their investment models are generally driven by yield generation rather than regulatory capital optimisation. As a result, private credit funds can often take risks that traditional lenders may be unwilling or unable to accept. These lenders are increasingly providing financing for portfolio acquisitions, warehouse facilities, pre-delivery payment financing, engine portfolios, aircraft transitions and specialised aviation assets. 

Unlike syndicated bank facilities, private credit transactions are frequently structured bilaterally, enabling faster decision-making and tailored commercial terms. Borrowers may benefit from greater structuring flexibility, customised amortisation profiles and financing solutions tailored to specific portfolio objectives. In many cases, certainty of execution can be as important as pricing, particularly where lessors are competing to acquire assets or complete transactions within compressed timelines. 

The trade-off is cost. Private credit generally commands higher margins than traditional bank debt. Borrowers effectively pay a premium for flexibility, speed and willingness to finance situations that may sit outside conventional banking parameters. 

Why aviation is attracting private credit capital 

Several characteristics make aviation particularly attractive to private credit investors. 

Firstly, aircraft are globally mobile assets with deep secondary markets and established remarketing channels. This provides lenders with collateral that can, in appropriate circumstances, be repositioned, leased or sold if enforcement becomes necessary. 

Secondly, the sector benefits from strong long-term demand fundamentals. Global passenger growth, fleet modernisation programmes and substantial order backlogs at Airbus and Boeing continue to drive funding requirements across the aviation ecosystem. The financing needs associated with these developments are significant and cannot be met by traditional banking markets alone. 

Thirdly, private credit investors also see aviation as offering attractive risk-adjusted returns relative to other asset-backed lending sectors. Aircraft assets provide diversification benefits and exposure to a tangible underlying asset class with established valuation methodologies. 

Finally, the aviation industry has become increasingly sophisticated in its use of special purpose vehicles (SPVs), securitisations and portfolio structures. These frameworks are familiar to many private capital providers and can integrate into existing investment strategies. Ogier's recent aviation market analysis highlights how SPVs remain central to aviation financing structures and continue to evolve alongside changing capital markets dynamics. 

Advantages of private credit financing 

Private credit offers more than additional funding capacity.

Speed and execution certainty 

Perhaps the greatest advantage is the ability to move quickly. Private credit funds often have streamlined approval processes and can provide financing commitments within shorter timeframes than traditional lending syndicates. This can be particularly valuable in competitive acquisition processes. 

Structuring flexibility 

Private lenders are generally more willing to tailor financing arrangements to meet commercial objectives. This may include customised amortisation schedules, delayed drawdown facilities, portfolio-based financing or structures involving assets at different stages of the leasing lifecycle. 

Financing complex situations 

Private credit providers are frequently willing to support transactions involving new platforms, concentrated portfolios, mid-life aircraft, engine assets or jurisdictions that may fall outside traditional banking mandates. 

Relationship-driven solutions 

Unlike heavily standardised institutional lending programmes, many private credit transactions are negotiated directly between lender and borrower. This often allows commercial solutions to be developed more efficiently when circumstances change during the life of the investment. 

Challenges and considerations 

Despite these benefits, private credit financing is not without challenges. 

Pricing is the clearest consideration. Higher returns are typically required by private credit investors, resulting in higher borrowing costs than investment-grade bank debt. 

Borrowers may also encounter tighter covenant packages, more frequent reporting obligations and enhanced lender oversight. Private credit providers often seek greater visibility over asset performance and portfolio developments in order to protect their investments. 

Liquidity also needs careful thought. Bank syndications may offer opportunities to introduce additional lenders or refinance facilities through broader capital markets channels. Private credit structures can be more bespoke and may require earlier and more detailed planning for refinancing. 

In addition, negotiations around enforcement rights, security packages, valuation mechanics and consent thresholds can become increasingly important given the concentrated nature of many private credit lending arrangements. 

Documentation and structuring considerations 

The growing participation of private credit lenders has increased the focus on documentation and transaction structuring. 

Parties should carefully consider the interaction between financing arrangements and the underlying aircraft ownership structure. The use of bankruptcy-remote SPVs remains central to aviation financing transactions, helping to isolate assets and liabilities while giving lenders a clear security package. 

Intercreditor issues may become more prominent where bank debt, warehouse facilities, securitisation structures and private credit financing coexist within a broader platform. Ranking arrangements, enforcement rights and cash-flow waterfalls require careful analysis and drafting. 

Covenant packages often differ from those found in conventional bank financings. Private credit lenders may seek enhanced controls around asset disposals, lease amendments, jurisdictional exposure, maintenance reserves and cash management arrangements. 

Cross-border transactions can introduce additional complexities, particularly where aircraft, lessees, lenders and SPVs are located across multiple jurisdictions. Tax, regulatory, corporate governance and insolvency considerations should be assessed alongside the commercial financing terms. 

Looking ahead 

Private credit is no longer an alternative funding source operating at the margins of aviation finance. It has become an established and increasingly influential component of the capital stack. As demand for aircraft financing continues to grow and traditional lenders remain disciplined in their capital deployment, private credit providers are likely to play an increasingly important role in supporting fleet growth, portfolio acquisitions and new aviation platforms. 

For aviation stakeholders, the conversation has moved on from whether private credit should be considered. It is now about to how to integrate these financing solutions efficiently within broader funding strategies. Those who understand the opportunities, risks and structuring implications associated with private credit will be best positioned to access capital and execute transactions in an increasingly competitive market. 

Explore alternative capital sources 

As aviation financing evolves, access to diverse pools of capital is becoming a strategic advantage. Ogier's aviation finance team advises lessors, lenders, investors and asset managers on the structuring, establishment and administration of aviation SPVs and financing platforms across key international finance centres. 

How Ogier can help 

For participants operating in multiple aviation centres such as Ireland, Cayman, Guernsey, Singapore, Dubai or Hong Kong, coordinated advice across legal, corporate, regulatory and tax disciplines is often critical to achieving efficient outcomes. Ogier's integrated aviation finance offering is specifically designed to support such structures from establishment through to ongoing administration and governance. 

To discuss how private credit structures could support your aviation financing strategy, contact Ogier's Aviation Finance team. 

About Ogier

Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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