Partnership Aircraft Financing

Last updated: November 17, 2025 • Not financial advice

Partnership & Co-Ownership Aircraft Financing: Understanding Multi-Borrower Loan Structures

Aircraft partnerships and co-ownership arrangements allow multiple individuals to share acquisition costs and operating expenses while splitting access to aircraft. This structure enables broader participation in aircraft ownership than single-owner models would otherwise permit. However, financing co-owned aircraft introduces complexity in loan structuring, personal guarantee requirements, liability allocation, and partnership governance that single-owner transactions avoid.

Lenders approach partnership aircraft loans with heightened caution due to greater complexity in default scenarios, partner disputes, forced sales, and operational conflicts. Understanding how lenders structure multi-borrower loans, what personal guarantee requirements apply, how liability is allocated in default scenarios, and how partnership agreements affect loan terms is essential for successfully securing favorable financing for partnership aircraft acquisitions.

Joint Borrower Requirements and Credit Evaluation

When multiple individuals or entities co-borrow on aircraft loans, lenders treat each borrower's creditworthiness as supporting the loan obligation. This differs from general co-signing, where one borrower is primary and others secondary.

Individual Credit Assessment for Each Borrower

Lenders typically evaluate each partner's creditworthiness individually:

• Individual credit scores: Each borrower's FICO score is assessed; lenders typically require all borrowers to meet minimum credit thresholds (commonly 680+), though one strong borrower can offset weaker scores
• Individual income documentation: Each borrower must provide personal tax returns, W-2s, or Schedule C documentation showing sufficient personal income to support obligations
• Individual liquidity: Each borrower's personal liquid assets are evaluated; lenders seek evidence of financial stability beyond partnership aircraft access
• Individual liability profile: Bankruptcies, judgments, or public records of individual borrowers are considered in underwriting

Compensating Factors in Multi-Borrower Structures

Multi-borrower arrangements can offer compensating factors that offset weaker individual profiles:

• Portfolio strength: If one borrower has weak credit but others are strong, portfolio-level creditworthiness may support approval
• Collective liquidity: Combined liquid assets of all partners may exceed individual minimums, supporting higher leverage
• Collective income: Combined income of multiple borrowers may support higher loan amounts than any individual could obtain alone
• Debt service coverage: Portfolio-level cash flow analysis may show stronger DSCR than any individual borrower alone

Majority vs. Unanimous Borrower Requirements

Lenders vary on whether all partners must meet credit standards or if majority strength is sufficient:

• Conservative lenders: Require all borrowers to meet minimum FICO (typically 680+) and documented income standards
• Relationship-based lenders: May accept one weak borrower if others are strong and collective portfolio is acceptable
• Threshold approach: Some lenders establish minimum borrower quality (e.g., 60% of borrowers must exceed 700 FICO) vs. universal requirements

Liability and Default Scenarios in Co-Ownership

One major concern with partnership aircraft loans is how liability is allocated when one partner defaults or conflicts arise. Loan documents must clearly establish liability structures.

Joint and Several Liability

Most partnership aircraft loans use "joint and several liability" structures where each borrower is individually liable for the full loan amount:

• Lender flexibility: Lender can pursue any partner for full payment, not just that partner's proportional share
• Individual exposure: Each partner faces exposure for full loan balance if other partners default or financial circumstances change
• Cross-indemnification: Loan documents typically include provisions allowing non-defaulting partners to pursue defaulting partners for their share of loss
• Personal asset exposure: Joint and several liability extends to partners' personal assets if aircraft sale and insurance proceeds don't cover loan balance (deficiency)

Limited vs. Proportional Liability Arrangements

Some lenders will structure partnerships with limited liability where each partner's responsibility is capped at their ownership percentage:

• Lender perspective: Limited liability is riskier for lenders and typically requires stronger overall portfolio creditworthiness and higher equity
• Partner protection: Each partner's liability capped at ownership percentage and documented assets reduces cross-partner liability risk
• Financing cost: Limited liability arrangements may carry 0.25–1.00% interest rate premium vs. joint and several due to increased lender risk

Bankruptcy and Forced Exit Scenarios

Loan documents must address what happens if one partner faces financial distress or bankruptcy:

• Bankruptcy implications: If one partner files bankruptcy, the aircraft and partnership are subject to bankruptcy court intervention; loan documents should specify acceleration triggers and forced sale procedures
• Forced buyout provisions: Some partnerships include forced buyout clauses allowing non-bankrupt partners to purchase bankrupt partner's equity at formula price rather than full asset liquidation
• Lender consent requirements: Loan documents typically require lender consent to any buyout or equity transfers affecting partnership composition
• Default acceleration: Loan documents may permit lender acceleration upon change-of-ownership events or bankruptcy filing by any partner

Partnership Agreement Requirements and Impact on Financing

Comprehensive partnership agreements are essential prerequisites for partnership aircraft financing. Lenders require specific provisions addressing operational and financial governance.

Essential Partnership Agreement Components

Loan documents typically require partnership agreements addressing:

• Ownership percentages: Clear documentation of each partner's equity stake; affects liability allocation, income sharing, and decision-making authority
• Capital contribution schedules: Each partner's initial and ongoing capital contributions; includes down payment amounts and monthly operating cost shares
• Decision-making authority: Specification of which decisions require unanimous consent (major capital investments, aircraft sale, partner admission) vs. majority or partner approval (day-to-day operations)
• Operating cost allocation: How fuel, maintenance, insurance, crew, and hangar costs are shared among partners; can be equal shares, usage-based, or ownership-percentage-based
• Aircraft access and scheduling: How partners schedule flights; whether flying hours are limited per partner; how conflicts over aircraft availability are resolved

Buy-Sell and Exit Provisions

Critical partnership provisions affecting future financing and ownership transitions include:

• Death or disability: Provisions addressing what happens if one partner dies or becomes incapacitated; typically require surviving partners to purchase deceased partner's equity
• Forced exit valuation: Formula for valuing partner equity at forced buyout (book value, appraisal, mutual agreement price); affects remaining partners' financial burden if one partner must exit
• Right of first refusal: If one partner wishes to sell equity to outside party, other partners typically have right to match offer before outside buyer admitted
• Dissolution procedures: If partnership dissolves, how is aircraft valued and sold; how are proceeds distributed to partners; how is debt satisfied

Operational Restrictions and Covenant Requirements

Loan documents may impose operational restrictions on partnerships:

• Unanimous lender consent required: Changes to partnership composition, ownership percentages, or operating control require lender consent
• No additional debt without lender approval: Partnership cannot incur additional debt against aircraft or partnership assets without lender authorization
• Maintenance standards: Partnership must maintain aircraft per manufacturer/lender specifications; lender may require regular maintenance documentation
• Insurance requirements: Partnership must maintain specified hull and liability insurance with lender as loss payee

Insurance for Co-Owned and Partnership Aircraft

Insurance structuring for partnership aircraft is more complex than single-owner arrangements due to multiple insurable interests and liability exposure.

Hull Insurance Considerations

Partnership aircraft hull insurance must account for multiple ownership interests:

• Named insured: Policy must list all partners as named insureds (not just "Partnership X"); each partner's insurable interest must be documented
• Lender loss payee: Loan balance must be protected via loss payee or additional insured endorsement
• Agreed value basis: Insurance must be written for agreed value reflecting current aircraft market value
• Multiple pilot endorsements: If different partners pilot the aircraft, insurance must reflect all authorized pilots; open pilot endorsements may carry additional premium
• Deductible allocation: Loan documents should specify how insurance deductible is allocated among partners (equal share, usage-based, or designated partner responsibility)

Liability Coverage Allocation

Liability exposure in partnerships is more complex due to multiple pilots and diverse usage patterns:

• Combined single limit vs. split limit: Partnership policies may use combined single limit ($1M–$5M) or traditional split limits (bodily injury/property damage/passenger)
• Passenger liability: If partners routinely carry passengers, higher passenger liability limits may be required
• Cross-liability endorsement: Essential for partnerships; endorsement allows one partner to recover from insurer for claims against other partners (without this endorsement, insurer might deny coverage based on insured-vs-insured exclusion)
• Partners as additional insureds: All partners should be listed as additional insureds on liability policy to protect against claims from other partners

Pilot and Usage Restrictions

Insurance underwriting for partnerships depends on authorized pilots and aircraft usage:

• Named pilot endorsements: Insurance lists specific authorized pilots by name and certificate number; changes require policy endorsement (may increase premium if adding less experienced pilots)
• Open pilot policies: Some carriers allow "open pilot" endorsement where any qualified pilot can operate if meeting specified minimums (hours, ratings, recency); typically costs 10–15% premium vs. named pilot
• Training flight restriction: Partnerships using aircraft for training flights face higher insurance costs and may require specific training endorsements
• Commercial use prohibition: Most partnership policies prohibit commercial operations (charter, instructional use, aerial work); commercial revenue use requires separate commercial rider or dedicated commercial policy

Ownership Structures and Financing Implications

Different partnership and co-ownership structures carry distinct financing implications and tax treatment.

General Partnership Structure

Simplest partnership form but carries unlimited personal liability:

• Financing ease: Easiest structure for lenders; minimal documentation required; straightforward pass-through taxation
• Liability exposure: Each partner personally liable for partnership debts and liabilities; creditors can attach individual partner assets
• Tax treatment: Pass-through entity; partnership not taxed; income/loss flows through to partners' personal returns; depreciation benefits available to partners
• Interest rate impact: May receive slight rate discount vs. LLC due to simpler documentation and lender familiarity

Limited Partnership Structure

Partners include general partner(s) with unlimited liability and limited partners with liability capped at capital contribution:

• Lender perspective: More complex documentation; lenders require general partner financial statements and guarantees
• Liability structure: General partner(s) liable for partnership debts; limited partners' liability capped at equity contribution
• Financing impact: Limited partnership structure may require 0.25–0.50% interest rate premium due to increased complexity
• Passive loss limitations: Limited partners' depreciation benefits may be subject to passive loss limitations

Limited Liability Company (LLC) Structure

Increasingly popular for aircraft partnerships due to flexibility and liability protection:

• Liability protection: All members have limited liability; personal assets generally protected from partnership creditors
• Financing documentation: Requires comprehensive operating agreement; lenders require personal guarantees from all members
• Flexibility: LLC structure allows flexible profit allocation (doesn't need to mirror ownership percentages like partnerships)
• Tax options: LLC can elect pass-through taxation or corporate taxation; flexibility useful for tax planning
• Financing costs: May carry slight premium (0.25% +) vs. general partnership due to complexity, but less than limited partnership

Frequently Asked Questions

Practical Tips for Partnership Aircraft Financing Success

• Get detailed partnership agreement: Draft comprehensive partnership agreement before approaching lenders. Clear governance reduces future conflicts and facilitates lender approval.
• Document buy-sell arrangements: Establish valuation formula and buyout procedures for partner exit before dispute arises. This protects remaining partners and gives lenders confidence.
• Use the calculator carefully: Model financing scenarios using conservative cost estimates; partnerships often underestimate hidden operating costs and maintenance expense.
• Secure cross-liability insurance: This endorsement is essential; without it, partners cannot recover from insurer for claims against other partners. Verify coverage exists before closing.
• Establish partner dispute resolution: Define mediation/arbitration processes for partner disagreements in operating agreement. This reduces likelihood of litigation and forced sale.
• Plan for partner transitions: Address what happens if partner wants to exit or faces financial hardship. Clear procedures reduce need for costly litigation.
• Work with experienced lenders: Lenders familiar with partnership aircraft financing and entity structuring can provide valuable guidance on optimal structures.

Related Articles on Partnership and Entity Structuring

For additional context on related topics, review our guides on entity structuring for aircraft ownership, aircraft insurance requirements, and financing aircraft partnerships and flying clubs. Understanding what lenders look for in aircraft financing helps optimize partnership loan applications.

External resources: AOPA Aircraft Partnerships · AOPA Aviation Finance · National Business Aviation Association · Federal Aviation Administration

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