Part 135 Charter Financing

Last updated: November 17, 2025 • Not financial advice

Financing for Part 135 Charter Operators: Revenue-Based Underwriting for Commercial Aviation

Part 135 charter operators occupy a unique financing position within aviation. Unlike owner-operators who fly for personal transportation, charter operators generate documented revenue from aircraft operations. This revenue generation fundamentally changes the underwriting calculus, allowing lenders to evaluate aircraft loans based on projected cash flow from commercial operations rather than relying solely on the operator's personal credit and income.

The Federal Aviation Administration's Part 135 certification framework establishes strict operational, maintenance, and pilot training standards that lenders view as reducing risk. FAA Part 135 certification requirements set specific operational parameters that directly affect financing terms and conditions. This guide addresses revenue-based underwriting methodologies, operational considerations affecting loan terms, and strategic structuring to optimize financing outcomes for charter operators.

Revenue-Based Underwriting for Charter Operations

Revenue-based underwriting (also called "cash flow underwriting") evaluates a business's ability to service debt based on documented operational revenue rather than the owner's personal income or balance sheet. For Part 135 operators, this approach is critical because charter revenue often exceeds operator personal income, providing stronger debt-service capacity than personal credit metrics alone would suggest.

Historical Revenue Documentation

Lenders require substantial historical documentation to underwrite charter operations. Minimum requirements typically include:

• Two to three years of tax returns: Demonstrating profitability of the charter operation, typically as a separate Schedule C, Partnership Schedule K-1, or corporate entity tax returns
• Audited or reviewed financial statements: For operators seeking loans exceeding $500,000, lenders typically require third-party-prepared statements
• Management accounts: Monthly revenue and expense tracking showing seasonal trends, aircraft utilization patterns, and margin trends
• Customer contracts and commitments: Representative charter agreements showing pricing, payment terms, and minimum utilization guarantees
• Backlog documentation: Current booked flights and revenue commitments extending 3–6 months forward

Revenue Projections and Stress Testing

Future-oriented lenders evaluate charter operators based on conservative revenue projections. Critical elements include:

• Historical utilization analysis: Average revenue-generating flight hours per month, broken down by aircraft type, season, and business segment
• Charter rate benchmarking: Comparison of operator's rates to industry standards ($3,000–$8,000+ per flight hour depending on aircraft type and geography)
• Market demand assessment: Analysis of competitor capacity, customer demand trends, and geographic market growth
• Stress scenarios: Conservative stress-testing assuming 70–80% of projected utilization to ensure debt service sustainability under adverse conditions
• Break-even analysis: Minimum monthly utilization required to cover fixed costs (crew, maintenance reserves, insurance) before profit

Operating Margin Analysis

Margin analysis is critical to revenue-based underwriting. Typical charter operator margins vary significantly by business model:

• On-demand charter (traditional): Gross margins 45–60%; after crew and maintenance costs, net operating margins typically 15–30%
• Managed/shared flight programs: Lower gross margins (35–50%) due to fractional ownership arrangements, but more predictable revenue patterns
• Jet-card providers: Variable margins depending on contract terms with the jet-card company
• Air-taxi/regional charter: Often lower margins due to intense competition and commodity-like pricing

Debt-Service Coverage Ratio for Charter Operators

Lenders typically apply stricter DSCR requirements to charter operators than personal borrowers:

• Well-established operators (5+ years): DSCR of 1.25x–1.35x typically acceptable
• Newer operators (2–5 years): DSCR of 1.40x–1.50x preferred to provide safety margin
• Marginal or growing operators: DSCR of 1.50x–1.75x required due to higher volatility
• Multi-aircraft operators: Portfolio DSCR may allow cross-subsidization where one aircraft generates margin to support growth aircraft debt service

Higher Loan-to-Value Options for Commercial Operations

One significant advantage of Part 135 financing is the ability to qualify for higher LTV ratios than comparable personal aircraft loans. Lenders recognize that revenue-generating aircraft may justify higher leverage if margin and utilization forecasts are achievable.

LTV Ranges by Operator Profile

• Strong established operators (7+ years, proven DSCR): 75–85% LTV (15–25% down payment)
• Solid mid-sized operators (3–7 years, strong financials): 65–75% LTV (25–35% down payment)
• Newer or marginal operators (1–3 years, modest financials): 55–65% LTV (35–45% down payment)
• Startups or unproven business models: 50% LTV or less (50%+ down payment required)

Aircraft Type and Secondary Market Liquidity

Higher LTV ratios are more readily available for aircraft with strong secondary markets and proven resale potential:

• High-demand light jets: Cessna Citation family, Embraer Phenom, Bombardier Learjet—strong secondary markets support 80–85% LTV for experienced operators
• Popular turboprops: Pilatus PC-12, TBM 900/940—solid secondary markets support 75–80% LTV
• Specialized aircraft: Heavy jets, unique configurations, or older aircraft may be limited to 55–70% LTV due to narrower resale markets
• Aircraft type restrictions: Lenders may decline to finance certain aircraft types (experimental, ultra-specialized, or single-manufacturer platforms) due to secondary market concerns

Balloon Provisions and Residual Value Risk

Higher LTV financing for charter operators often includes balloon payment structures to align payments with expected residual values:

• Typical structure: 10–15 year amortization with 5–7 year balloon equal to 30–50% of original loan amount
• Residual value risk: Operator assumes risk that aircraft will be worth projected amount at balloon maturity; if aircraft value declines, operator must refinance or provide additional payment
• Lender perspective: Balloon structures allow lower loan payments during operator's growth phase while preserving lender collateral position through residual value protection
• Exit planning: Charter operators must plan for balloon payment through refinancing, sale-leaseback, or aircraft replacement

Insurance and Operational Requirements

Part 135 charter operations carry significantly higher insurance costs and more stringent coverage requirements than personal aviation.

Hull Insurance for Charter Aircraft

Part 135 operators must maintain comprehensive hull insurance covering aircraft market value. Typical requirements include:

• Coverage basis: Agreed value reflecting current market value of the specific aircraft and configuration
• Lender loss payee: Loan balance protection in case of total loss or damage exceeding operator's deductible
• Deductibles: $10,000–$25,000 typical for charter operators; some lenders accept only $5,000 maximum
• In-service hull value: Insurance should reflect aircraft market value while in active charter service

Liability Coverage Requirements

Part 135 charter operators face significant third-party liability exposure and must carry robust coverage:

• Minimum FAA requirements: $300,000 passenger liability per seat; minimum coverage typically $1,000,000 aggregate for small operators
• Lender requirements: Most lenders require $2,000,000–$5,000,000 combined single limit liability coverage
• Coverage elements: Bodily injury, property damage, passenger liability, products liability, and contractual liability
• Non-owned/hired aircraft: Many operators maintain coverage for rented/substitute aircraft operations

Crew and Pilot Training Requirements

Part 135 operations require demonstrated pilot competency affecting both insurance and loan covenants:

• Pilot qualifications: Part 135 pilots must maintain appropriate type ratings, recurrent training (every 12–24 months depending on aircraft), and medical certificates
• Operator responsibilities: Operators must maintain training documentation and ensure pilots meet regulatory minimums
• Lender oversight: Some lenders require annual certification that all pilots meet FAA qualifications and that training is current
• Insurance implications: Named pilot vs. open pilot endorsements affect premium costs; some operators accept higher premiums for open pilot flexibility

Certificate Holder Considerations

Holding an active FAA Part 135 certificate creates both advantages and complexities for financing.

Part 135 Certificate Value in Underwriting

Active Part 135 certification strengthens credit profiles and supports higher leverage:

• Regulatory stability: FAA oversight ensures compliance with training, maintenance, and operational standards, reducing lender risk
• Documented operations: Part 135 operators maintain required records of all flights, maintenance, and crew training, providing lenders with transparent operational metrics
• Risk reduction: Demonstrated compliance with FAA requirements supports claims of professional operations vs. part-time businesses

Multi-Aircraft Certificate Holder Financing

Operators holding certificates authorizing multiple aircraft can finance fleets more favorably:

• Fleet financing programs: Some lenders offer package pricing for multi-aircraft acquisitions (e.g., 0.50–1.00% rate discount for 3+ aircraft)
• Cross-collateralization: Lenders may allow second aircraft to secure financing through combined collateral arrangements
• Covenant flexibility: Portfolio-level DSCR calculations allow higher-margin aircraft to support leverage on growth aircraft

Management Company Structures for Charter Operations

Some operators structure charter businesses through management companies that provide pilot, maintenance, and operational services while a separate entity holds aircraft title. Financing considerations:

• Separation of revenue and collateral: Management company generates revenue; aircraft holding company carries debt. Lenders require revenue-sharing agreements supporting debt service.
• Guarantee structure: Lenders typically require personal guarantees from principals plus guarantees from management company revenue agreements
• Documentation complexity: Requires additional legal documentation (management agreements, revenue-sharing terms, default scenarios)
• Flexibility advantage: Allows separation of operations management from aircraft ownership, potentially enabling sale or refinancing of aircraft independent of operational changes

Key Documentation Required for Part 135 Financing

Beyond personal credit and financial documentation, charter operators must provide extensive operational documentation:

• FAA certificates and authorizations: Part 135 certificate, aircraft type endorsements, and principal operations specifications (POI/OpSpec)
• Aircraft maintenance records: Engine/prop logs, accident/incident history, airworthiness directives compliance, and service bulletins completion
• Pilot records summary: Crew qualifications summary, type rating currencies, recurrent training dates, and medical certificate status
• Operating statistics: Historical flight hours, revenue per flight hour, utilization trends, and profitability analysis
• Customer contracts: Representative charter agreements showing pricing, payment terms, and customer creditworthiness

Frequently Asked Questions

Practical Tips for Part 135 Operator Financing Success

• Document operational success: Maintain detailed records of flight hours, revenue, margins, and utilization. Organized financial documentation accelerates underwriting and supports better pricing.
• Build credit over time: If new to Part 135, start with one aircraft, prove profitability for 2+ years, then apply for multi-aircraft financing at better rates.
• Understand your DSCR: Calculate your projected debt-service coverage ratio using the aircraft financing calculator to understand what loan amounts lenders will approve.
• Plan for balloon payments: If financing includes balloon payments, begin planning refinancing 1–2 years before maturity to avoid operational disruption.
• Maintain regulatory compliance: Current Part 135 certification, pilot training, and maintenance compliance directly affect financing costs and availability.
• Compare commercial lenders: Work with lenders experienced in commercial aircraft financing versus consumer lenders.

Related Articles on Commercial Aviation Financing

For broader context on commercial aviation, explore our guides on what lenders look for in aircraft financing, aircraft insurance requirements, and commercial aircraft lending standards. Understanding loan term and amortization strategies helps operators model payment structures aligned to their growth projections.

External resources: FAA Part 135 Certification · NBAA Part 135 Information · 14 CFR Part 135 Regulations · AOPA Aviation Finance

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