Updated . Educational only — not tax, legal, or lending advice. Confirm figures with your CPA, the state revenue department, and a lender before you close.
The Payment Is One Covenant. It Is Not the Only One.
You can be current on the payment and in default of the loan. Aircraft notes include promises about the collateral because the collateral can be flown out of reach or grounded by a lapsed policy.
The usual set
- Insurance. Hull at or above the required value, liability at or above the required limit, lender as loss payee, notice of cancellation. A lapse is often an immediate default.
- Location and base. Some notes restrict basing the aircraft outside the United States or in a different state for long periods, because of tax, insurance, and repo practicality.
- Maintenance. Airworthy condition, compliance with ADs, no deferral of required items, logbooks kept with the aircraft.
- Negative pledge. No other liens. A shop bill that becomes a possessory lien can breach this even if you intended to pay it.
- Use. The use on the application. Renting, instructing, or chartering a personal-use aircraft is a breach and an insurance problem at the same time.
- Financial reporting. On larger or commercial credits, annual statements or a simple compliance certificate.
Cure periods differ. Insurance lapses often have none. A late financial statement often has several days. Read the defaults section before you sign, not after a notice arrives. If a covenant does not fit how you actually fly, change the covenant or change the plan. Do not sign and hope.
Questions buyers actually ask
Is a prepayment penalty a covenant?
It is a term, not a covenant. Many aircraft loans have no prepayment penalty. Confirm yours. Do not assume “aircraft loans never have one.”
What happens on a technical default if I am paying?
The lender can demand a cure, raise the rate if the note allows, or call the loan. In practice many will waive a minor, disclosed breach. They do not have to.