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Finance Lease Structure

Most Ex-Im Bank supported asset-based aircraft transactions use a finance lease structure.  Under this financing structure, a special purpose company (the "SPC") is established to act as (i) the borrower under the Ex-Im Bank supported financing, (ii) the owner of the Ex-Im Bank financed aircraft, and (iii) the lessor of the Ex-Im Bank financed aircraft to the end-user (e.g., the "Airline").  The SPC is usually organized and located in an offshore, tax neutral jurisdiction acceptable to Ex-Im Bank and the Airline.  The owner of the SPC grants Ex-Im Bank's security trustee a first priority, perfected security interest in its ownership of the SPC by pledging to the security trustee all outstanding shares (or other ownership interests) in the SPC. 

As the borrower, the SPC borrows funds from the Ex-Im Bank guaranteed lender (in the case of a guaranteed loan), or from Ex-Im Bank (in the case of a direct loan), to purchase the U.S. manufactured aircraft.  The amount borrowed under the Ex-Im Bank supported loan cannot exceed 85% of the net-net invoice price of the aircraft (as per OECD Arrangement guidelines).  The SPC typically obtains the balance of the aircraft purchase price from either (i) a commercial financial institution (through the proceeds of a non-Ex-Im Bank guaranteed commercial loan) or (ii) the Airline (through a non-refundable advance payment of rent under the lease).

As owner of the aircraft, the SPC grants Ex-Im Bank's security trustee an exclusive first priority, perfected security interest in the Ex-Im Bank financed aircraft to secure the Ex-Im Bank supported loan.  The Ex-Im Bank supported loan relating to an Ex-Im Bank financed aircraft will be secured by such aircraft and will be cross-collateralized with any past or future Ex-Im Bank financed aircraft. 

As lessor of the aircraft, the SPC enters into a lease agreement with the Airline for the lease of the Ex-Im Bank financed aircraft, the terms of which are the same as the terms of the Ex-Im Bank supported loan.  The SPC provides Ex-Im Bank's security trustee with an assignment of, and a first priority, perfected security interest in, the lease.  The SPC repays the Ex-Im Bank supported loan and any commercial loan out of the lease rentals paid by the Airline over the term of the lease.  The lease rentals paid by the Airline will at all times be sufficient to repay the SPC's loan obligations under the Ex-Im Bank guaranteed loan and any commercial loan.

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