Aircraft Financing: Loans, ECA, EETC and Beyond

Earlier posts in this series examined aircraft leasing (both dry-lease and wet-lease/ACMI structures) as the most common financing tool used by Asian regional carriers. Leasing dominates the market for practical reasons: it minimises capital commitment, transfers residual value risk to the lessor, and gives operators flexibility to adjust fleet composition as market conditions evolve. Over 40% of the global commercial fleet is now leased rather than owned, and for low-cost carriers the proportion is substantially higher.

But leasing is not the whole story. When an operator wants to actually own an aircraft (whether for strategic control, cost efficiency over a long service life, or to build book equity), several other financing structures come into play. These structures range from traditional commercial bank loans through Export Credit Agency-supported financing, capital markets instruments such as EETCs, Islamic financing structures like sukuk, and increasingly sustainability-linked variants of each. Understanding this broader financing landscape is essential for airline finance teams, and it shapes many of the strategic choices that show up downstream in fleet planning and network design.

This article walks through the main aircraft financing structures other than leasing, with attention to how each fits Asian regional airline economics.

1. The financing spectrum

At the highest level, an airline financing a new aircraft has four broad categories of tool available:

Commercial bank loans, whether secured or unsecured, whether syndicated among multiple banks or provided by a single lender, form the traditional backbone of aircraft financing. The mechanism is straightforward: the airline borrows money to purchase the aircraft, offers the aircraft (and sometimes related revenue streams) as collateral, and repays the loan over an agreed term with interest. Loan terms for new aircraft typically run 10 to 12 years, with amortization schedules calibrated to the aircraft’s expected economic life.

Export Credit Agency (ECA) financing brings government support into the transaction. The exporting country’s ECA either provides a direct loan or, more commonly, guarantees a commercial bank loan, reducing the credit risk to the lender and enabling more favourable terms for the airline. ECA support is available almost exclusively for new-aircraft deliveries directly from the manufacturer.

Capital markets instruments allow the airline to raise money from investors rather than banks. The most important structure in this category is the Enhanced Equipment Trust Certificate (EETC), a specialised securitisation used primarily by US airlines but with some international application. Standard corporate bonds and secured aircraft-backed bonds also feature in the market.

Islamic finance structures, particularly sukuk, provide Sharia-compliant financing alternatives that are important in Middle Eastern, Malaysian, and some other Muslim-majority markets. The structures achieve the economic equivalent of debt financing through profit-sharing or asset-lease mechanisms that avoid the payment of interest as such.

Each of these structures has developed its own conventions, market participants, and regulatory frameworks, and each fits certain operator profiles better than others. Most large airlines use several of these structures simultaneously, choosing the appropriate mechanism for each aircraft or transaction based on the specific circumstances.

2. Commercial bank loans

Bank loans remain the most common financing structure for new aircraft outside the US EETC market and the Middle East sukuk market. The typical structure involves an airline borrowing from either a single relationship bank or a syndicate of banks, with the aircraft mortgaged as collateral. The loan terms will typically include:

Amortisation over the aircraft’s expected economic life (10 to 15 years for a new narrowbody, 12 to 18 years for a new widebody), with monthly or quarterly payments including principal and interest.

Interest rate structured as either fixed rate, floating rate over a reference benchmark (historically LIBOR, now Term SOFR or its equivalents), or a combination.

Loan-to-value (LTV) ratio determining how much of the aircraft purchase price the loan covers. New-aircraft financings typically achieve 75% to 85% LTV, with the airline providing the balance as equity from its own resources or through pre-delivery financing.

Financial covenants restricting the airline’s actions during the loan term, including limits on additional debt, minimum liquidity requirements, and mandatory prepayment if the airline’s credit condition deteriorates.

Return conditions specifying the aircraft’s mechanical and cosmetic state upon repossession in the event of default, similar to lease return conditions but applied only in default scenarios.

The advantage of commercial bank financing is flexibility. Banks can structure transactions to individual airline needs, negotiate individual covenants, and provide relationship-based support that transactional financing structures cannot match. The disadvantage is that banks require substantial credit analysis, and airlines with weaker credit profiles may find loan terms uneconomic or unavailable.

Regional commercial banks are increasingly active in aircraft financing for their home-market airlines. In the Middle East and Asia particularly, in-country banks are moving from secondary participants to primary lenders on aircraft transactions for their national carriers, offering competitive pricing that reflects local credit understanding.

3. Export Credit Agency financing

The economic role of Export Credit Agencies in aircraft financing is to provide government-backed support for aircraft exports from their home countries, on the theory that this supports domestic aerospace employment and technology leadership. The main ECAs active in aircraft financing today:

US Export-Import Bank (Ex-Im) supports exports of Boeing commercial aircraft. Ex-Im can either provide direct loans to foreign airline buyers or guarantee commercial bank loans made to those buyers. The guarantee dramatically reduces credit risk for the commercial lender, enabling financing terms that would otherwise be unavailable.

UK Export Finance (UKEF), Bpifrance (France), and Euler Hermes (Germany) collectively support Airbus commercial aircraft exports, given that Airbus manufactures with substantial participation from all three countries. Airbus deliveries frequently involve ECA support from two or three of these agencies simultaneously.

Sinosure (China Export & Credit Insurance Corporation) and CEXIM (Export-Import Bank of China) support Chinese aerospace exports, including the emerging commercial aircraft programmes such as COMAC C919. As these programmes scale in the late 2020s, Sinosure and CEXIM activity in aircraft financing is expected to increase materially.

Other national ECAs including Brazil’s ABGF (supporting Embraer regional jet exports), Canada’s EDC (historically supporting Bombardier regional aircraft before the CRJ programme transitioned), and various smaller ECAs supporting other national aerospace industries also feature in the market.

The framework governing ECA aircraft financing is the 2011 Aircraft Sector Understanding (ASU), an agreement among the United States, the European Union, Canada, Brazil, and other countries that establishes uniform terms for ECA support of commercial aircraft exports. The ASU set higher initial ECA risk premium rates across risk classification levels, mandated stricter equity requirements, and effectively made ECA financing somewhat less attractive than earlier arrangements. The Cape Town Convention (2006) provides related benefits: airlines from Convention-implementing countries qualify for reduced ECA risk premium rates because the Convention improves creditor protections in cross-border aircraft transactions.

An important limitation is the informal “Home Country Rule” among US, French, German, Spanish, and UK aviation authorities: airlines based in these countries are not eligible for ECA support from those countries’ agencies. The rule prevents the largest aerospace-producing countries from providing ECA support to their own carriers, on competitive fairness grounds.

The historical pattern of ECA usage has shifted meaningfully. From 2008 through 2013, ECAs collectively supported 26% of large commercial aircraft deliveries. Following the 2011 ASU’s tighter terms, ECA usage declined, replaced by alternative financing structures including EETCs, private financing platforms like the Aircraft Finance Insurance Consortium (AFIC) and Balthazar, and expanded lessor activity. In 2025-2026, however, ECAs are becoming more active again as delivery volumes increase and airlines seek diverse funding sources, particularly for widebody aircraft with substantial capital requirements.

4. Enhanced Equipment Trust Certificates

The EETC is the most sophisticated aircraft financing instrument in commercial aviation, and it deserves detailed attention. The structure is used primarily by US airlines because it depends on specific US bankruptcy law protections, but the mechanics are worth understanding globally as they inform how aircraft financings are structured across all markets.

The historical origin of the EETC lies in the 1920s equipment trust certificates used to finance US railroad rolling stock. The “enhanced” modifier refers to structural improvements added in the 1990s and 2000s: debt tranching, liquidity facilities, over-collateralisation, and cross-collateralisation among aircraft in the same transaction pool.

The typical modern EETC structure:

The airline selects a pool of aircraft (in 12 of 15 EETC issuances between 2020 and 2025, pools of 30 to 100 aircraft, all newer models with long remaining service lives) to serve as collateral for the transaction.

A financial special purpose vehicle (SPV) is established to hold legal title to the aircraft, with each aircraft financed by a separate equipment note issued by a subsidiary trust.

The equipment notes are pooled and their cash flows are used to service payments on Pass-Through Certificates issued to public investors. The certificates are typically divided into multiple tranches (senior Class A, subordinated Class B, further subordinated Class C, and occasionally Class D), with each tranche having different priority in payment and different sensitivity to underlying credit deterioration.

A liquidity facility, typically sized to cover 18 months of scheduled interest payments, backstops the certificates. This facility provides the time needed for orderly repossession and remarketing if the airline defaults.

The transaction includes cross-collateralisation (all aircraft secure all tranches) and cross-default provisions (default on one equipment note triggers default on all).

The critical legal foundation for the EETC is Section 1110 of the US Bankruptcy Code, which provides “extraordinary protections unavailable to unsecured creditors.” Under Section 1110, if a qualifying US air carrier files for Chapter 11 bankruptcy, it must within 60 days either affirm its aircraft financing obligations and cure any defaults, or return the aircraft to the trustees. This 60-day protection allows EETC investors to reclaim their collateral quickly and predictably, dramatically reducing credit risk compared to unsecured airline debt.

The economic result is that senior EETC certificates can achieve investment-grade ratings even when the issuing airline is rated below investment grade. Rating uplift of several notches above the airline rating is common for well-structured senior tranches. This makes EETCs a substantially cheaper source of financing than unsecured airline debt or non-US-backed aircraft financing.

The limitation is that Section 1110 protection applies specifically to US aircraft transactions. EETCs have been attempted with non-US airline issuers (Emirates, for example, has explored the structure), but the credit rating benefit is substantially reduced without equivalent bankruptcy protection frameworks. As a result, EETCs have remained primarily a US phenomenon.

For Asian regional carriers, EETCs are largely unavailable in practice, both because of the lack of equivalent bankruptcy protection and because the transaction sizes typical of EETC issuances (many hundreds of millions of dollars) exceed the financing needs of most individual regional carriers. Asian carriers instead rely more heavily on operating leases, sale-leaseback structures, ECA financing where available, and direct commercial bank loans.

5. Islamic finance and sukuk

For airlines operating in Islamic finance markets, particularly the Middle East, Malaysia, Turkey, and Indonesia, sukuk provide a Sharia-compliant alternative to conventional debt financing. The structural principle is that sukuk avoid the direct payment of interest (which is prohibited under Sharia law) by structuring the financing as an asset-linked transaction where the investor’s return derives from participation in the underlying asset’s economic returns rather than from interest per se.

Several sukuk structures are used in aircraft financing:

Ijara sukuk represents the closest Islamic analogue to a conventional operating lease with financing characteristics. The financier purchases the aircraft, leases it to the airline under an Ijara contract, and the airline’s lease payments constitute the sukuk return distributions to investors. At the end of the term, the airline typically has an option to purchase the aircraft.

Murabaha sukuk involves cost-plus financing where the financier purchases the aircraft and sells it to the airline at an agreed markup, with the airline paying in instalments. The markup represents the financier’s return in place of interest.

Wakala and other structures represent variations on agency and profit-sharing themes, allowing flexibility in specific transaction structures.

The regional Islamic finance market has grown substantially, and Malaysian Airlines, Turkish Airlines, Emirates, Saudia, and Etihad have all raised significant financing through sukuk over the past decade. Etihad Airways, in particular, has pioneered Islamic finance innovation in aviation, including the world’s first Transition Sukuk in October 2020 (a US$600 million issuance linking sukuk terms to specific carbon reduction targets) and subsequent sustainability-linked financing structures. These developments illustrate how sukuk frameworks are evolving to incorporate ESG considerations alongside traditional Sharia compliance.

For Asian regional carriers in Muslim-majority markets, sukuk provide a genuine alternative to conventional aircraft financing that fits both religious and regulatory frameworks. Indonesia’s Garuda and Malaysia’s national carriers have made regular use of Islamic finance instruments in their fleet financing.

6. Japanese Operating Lease with Call Option (JOLCO)

A specific structure worth noting is the Japanese Operating Lease with Call Option (JOLCO), which uses Japanese tax incentives to provide financing that is economically similar to a low-cost finance lease. The mechanism relies on Japanese tax law provisions that allow accelerated depreciation on aircraft owned by qualifying Japanese entities.

In a typical JOLCO structure, Japanese investors form a Special Purpose Company (SPC) that purchases the aircraft, then leases it to the operating airline. The Japanese investors receive early tax benefits from accelerated depreciation, allowing them to accept below-market lease returns. At the end of a defined term, the airline can exercise a call option to purchase the aircraft.

The economic result is that the airline receives financing at a lower effective cost than a conventional finance lease, in exchange for accepting some structural complexity and Japan-specific documentation. JOLCOs have historically been popular with Asian regional airlines, particularly for financing narrowbody aircraft.

The structure has become more complex to execute following changes in Japanese tax law and international tax rules on accelerated depreciation, but JOLCOs and similar tax-driven structures continue to feature in the Asian aircraft financing landscape.

7. Sustainability-linked and green financing

An increasingly important development in 2024-2026 aircraft financing is the growth of sustainability-linked structures. These instruments modify traditional financing structures by linking financing terms to the airline’s achievement of specific environmental, social, or governance targets. The most common structure ties either coupon rates or fee levels to the airline’s carbon intensity metrics, with modest step-ups if targets are missed.

Etihad Airways led the aviation industry into this space with its 2020 Transition Sukuk, followed by a US$1.2 billion Sustainability-Linked Loan in October 2021 that tied loan terms to environmental (carbon emissions per revenue tonne kilometre), social (female employment and training at the Global Business Service Solutions centre), and governance (Integrity Score) KPIs. The transaction structure demonstrated that Islamic finance frameworks could accommodate ESG considerations alongside traditional Sharia requirements.

Subsequent transactions across the industry have adopted variations on this model:

Sustainability-linked bonds (SLBs) and loans (SLLs) tie financing costs to targets, without dedicating proceeds to specific projects. This is the framework used by most major airline sustainability financings.

Green bonds and green loans dedicate proceeds to specific green projects (such as new-generation fuel-efficient aircraft or sustainable aviation fuel investments), with independent verification of the use of proceeds.

Transition financing supports airlines’ transitions toward lower-carbon operations, with proceeds tied to defined transition plans and independent verification.

The link between these instruments and the broader CORSIA framework (covered in a separate post in this series) is becoming increasingly important as regulatory and market pressure on airline carbon emissions grows. Airlines that structure their financing around sustainability KPIs benefit both from marginally lower financing costs (through the KPI-linked step-downs) and from improved investor relations with the growing ESG-focused institutional investor base.

For Asian regional carriers, the market for sustainability-linked instruments is developing but not yet fully mature. Larger flag carriers with established capital market presence have begun issuing sustainability-linked instruments, but smaller regional operators typically continue to rely on conventional financing structures.

8. The Asian regional context

Several characteristics distinguish aircraft financing in Asian regional aviation from the broader global market:

Reliance on lessors remains dominant. Aircraft lessors continue to be the largest single source of financing for Asian regional carriers, particularly for narrowbody aircraft. The combination of asset-light business models (particularly at LCCs) and the ready availability of lessor capital keeps operating leases as the default structure.

Domestic bank participation is growing. In-country banks in the Middle East, India, and increasingly Southeast Asia are moving from secondary participants to primary lenders on aircraft transactions for their home-market airlines. The 2025-2026 pattern shows accelerating regional bank activity, with competitive pricing reflecting local credit relationships.

Currency preferences matter. Chinese airlines increasingly finance transactions in Chinese yuan rather than US dollars, reflecting both currency risk management and the availability of domestic yuan-denominated capital markets. Similar patterns are emerging in other Asian markets.

ECA usage varies by manufacturer. Asian regional carriers taking delivery of Boeing aircraft can access US Ex-Im Bank support; those taking Airbus can access UKEF, Bpifrance, and Euler Hermes support. The choice between manufacturers can therefore affect financing options.

Sukuk features prominently in Muslim-majority markets. Indonesian and Malaysian carriers regularly use Islamic finance structures for aircraft acquisition, and the sukuk market for aircraft financing has matured substantially over the past decade.

EETCs are largely absent. As discussed, EETCs depend on specific US bankruptcy protections that do not have equivalents in most Asian jurisdictions, so EETCs are essentially not a tool available to Asian regional operators.

9. Three rules for the airline finance team

For carriers navigating the financing landscape, three working rules:

Rule 1: Match the financing structure to the aircraft’s strategic role. A core fleet aircraft that the airline expects to operate for its full economic life is a candidate for owned financing (bank loan, ECA-supported financing, or sukuk depending on the operator’s market and preferences). A transitional aircraft or one where residual value risk is a concern is a candidate for operating lease. Committing to the wrong structure early creates costly obligations that are difficult to unwind.

Rule 2: Diversify financing sources over time. No airline should be dependent on a single financing source. A finance team that has developed relationships with multiple commercial banks, has capacity to access ECA support when available, has considered capital markets options where feasible, and understands the sukuk market where relevant retains negotiating leverage and operational flexibility across market conditions. The 2025-2026 environment, with strong lessor availability and returning ECA activity, provides real opportunities to diversify.

Rule 3: Integrate sustainability KPIs into financing structures where possible. The economic benefit of KPI-linked instruments is currently modest (typically 5 to 15 basis points), but the strategic benefit of aligning financing structures with the airline’s sustainability commitments is substantial. Building the internal capability to structure and monitor sustainability-linked transactions is investment that will pay off as ESG becomes more central to institutional investor requirements.

Closing

Aircraft financing is not merely a back-office administrative function. It shapes which aircraft an airline can afford to acquire, on what terms, with what long-term obligations, and with what implications for the airline’s broader strategic flexibility. The choices between lease and ownership, between commercial bank and ECA-supported financing, between conventional and Islamic structures, between traditional and sustainability-linked instruments all cascade through the airline’s financial position, fleet strategy, and operational flexibility.

For Asian regional carriers in particular, the financing landscape has become substantially richer over the past decade. Lessors provide dominant capacity, in-country banks are increasingly active, Islamic finance structures are well-established in Muslim-majority markets, and sustainability-linked instruments are emerging. The airline finance teams that navigate this landscape effectively (understanding the trade-offs, maintaining diversified relationships, matching structures to strategic needs) operate with real advantages over teams that treat aircraft financing as a routine procurement exercise.

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This article describes general aircraft financing structures used in commercial aviation. Specific transaction terms, regulatory treatments, and tax implications vary by jurisdiction and by transaction. Practitioners should consult qualified aviation legal, tax, and finance advisers before structuring aircraft financing arrangements. Market data, transaction examples, and structural details cited reflect publicly reported information as of 2025-2026 and are subject to change.