Aircraft Mortgage (Secured Term Loan)

What it is

An aircraft mortgage — more often just called a secured aircraft loan in the industry, but functionally a mortgage in the same sense as a home loan — is the plainest form of aircraft ownership financing: a bank or syndicate of banks lends the airline the purchase price (or a large majority of it, with the airline funding the rest as a down payment/equity contribution), the airline takes title to the aircraft immediately, and the lender takes a security interest (a mortgage, recorded against the aircraft) giving it the right to repossess and sell the aircraft if the airline defaults. There's no lessor, no owner trust, and — unlike every tax-lease structure covered elsewhere on this platform (JOLCO, French lease, U.S. tax lease) — no third-party equity investor sitting between the airline and the asset for tax reasons. It's the aircraft-finance equivalent of buying a house with a conventional mortgage rather than renting or entering a rent-to-own arrangement.

How this differs from a Financial Lease

The Financial Lease primer on this platform covers a structure that behaves economically like ownership financing but is legally documented as a lease — often because a JOLCO, French lease, or similar tax- or credit-motivated vehicle sits in the chain of title for reasons unrelated to the airline's own financing need. An aircraft mortgage skips all of that: there's no lease document anywhere in the structure, no owner trust, no tax-equity investor to satisfy. The airline is the legal owner from the first day, financed the same way a straight secured loan finances any other capital asset. In practice, an airline chooses a straight mortgage over a finance-lease-wrapped structure when there's no tax or credit-enhancement benefit worth the extra structuring complexity — a strong-credit airline financing a routine aircraft purchase with a relationship bank is the typical case.

Amortization and typical terms

Like a real estate mortgage, an aircraft loan typically amortizes over the loan term — a mix of principal and interest paid on a regular (often quarterly or semi-annual) schedule — though the specific amortization profile (level payments, a balloon payment at maturity, mortgage-style vs. a bullet structure) is negotiated deal by deal. Loan-to-value ratios and tenor depend heavily on the airline's own credit strength and the aircraft type's collateral quality (a new-generation narrowbody in a deep, liquid secondary market supports a higher LTV and longer tenor than an aging or niche aircraft type would), the same underwriting logic that shapes EETC tranche structuring, just without the multi-airline capital-markets distribution an EETC achieves.

Why an airline would use it

Simplicity and speed relative to a tax-leveraged structure — no need to find and negotiate with a tax-equity investor, no dependency on a foreign or domestic tax regime remaining favorable, no owner-trust documentation layer. For an airline with strong-enough credit to get competitive bank pricing on its own, a straight mortgage can be the lowest-friction way to finance an aircraft purchase, at the cost of not capturing whatever below-market rate a tax-motivated structure might otherwise offer a weaker-credit borrower.

Risks and considerations

• Full residual value risk sits with the airline, not a lessor — since the airline owns the aircraft outright, it bears 100% of the risk that the aircraft is worth less than expected at any point it might want to sell or refinance, the mirror image of an operating lease's risk allocation.
• Concentration risk in the lending relationship matters the same way it does for any secured corporate borrowing — a small lender base gives the airline less negotiating leverage on covenants and repricing than a diversified funding mix (mortgage debt, EETCs, operating leases) would.
• Covenant and cross-default terms in a bank loan agreement are often less standardized and more airline-specific than a capital-markets structure like an EETC, meaning the fine print of any individual mortgage can matter more to the airline's overall flexibility than the headline rate does.