Decoding Part 135: Why Aircraft Financing is a Unique Challenge for Charter Operators

Part 135 operations present distinct financing challenges compared to personal or corporate Part 91 operations. Understanding these differences helps operators navigate the lending landscape and secure appropriate financing structures.

Understanding Part 135 Operations

Part 135 of the Federal Aviation Regulations governs commercial air carriers and operators for compensation or hire. Key characteristics include:

  • Commercial Purpose: Operations conducted for compensation or hire
  • Passenger Transport: Carrying paying passengers
  • Cargo Operations: Transporting property for compensation
  • Air Medical: Air ambulance and medical evacuation services
  • On-Demand vs. Commuter: Different requirements based on operation type
  • Certificate Requirements: FAA-issued operating certificate mandatory

According to National Business Aviation Association data, the U.S. Part 135 charter market comprises approximately 2,000 operators flying over 12,000 aircraft, generating annual revenues exceeding $15 billion.

Why Part 135 Financing Differs

Commercial lending carries additional complexity:

  • Revenue-Based Underwriting: Lenders evaluate business cash flow, not just personal income
  • Regulatory Risk: FAA enforcement actions can ground operations and revenue
  • Higher Utilization: Commercial use increases wear and accelerates depreciation
  • Insurance Complexity: Commercial coverage significantly more expensive
  • Maintenance Intensity: More frequent inspections and component replacements
  • Residual Value Risk: High-time aircraft face steeper value declines

Lender Categories for Part 135 Financing

Not all lenders serve this market:

  • Aircraft Finance Specialists: Experienced with commercial aviation; preferred option
  • Commercial Banks: May require existing business relationships
  • Leasing Companies: Specialized in commercial aircraft leasing
  • Private Lenders: Higher rates but flexible structures
  • Equipment Finance Companies: Asset-based lending approaches

Risk Assessment Framework

Lenders evaluate Part 135 operations differently:

  • Experience Track Record: Operator history and safety record
  • Financial Performance: Revenue history and profitability
  • Market Position: Competitive advantages and market share
  • Aircraft Suitability: Age, type, and configuration for charter market
  • Management Team: Leadership experience and qualifications
  • Regulatory Standing: FAA relationship and inspection history

Financing Challenges Unique to Part 135

Common obstacles operators face:

  • Startup Operations: No revenue history makes financing difficult
  • Single-Aircraft Operators: Concentrated risk concerns
  • Seasonal Revenue: Uneven cash flow complicates debt service
  • Regulatory Changes: New rules can impact business viability
  • Pilot Shortages: Staffing challenges affect operations
  • Competition: Saturated markets pressure margins

Success Factors for Part 135 Financing

Elements that strengthen applications:

  • Established Operations: 2+ years operating history with financials
  • Diversified Revenue: Multiple revenue streams reduce risk
  • Experienced Management: Leadership with proven track record
  • Modern Fleet: Newer aircraft with remaining component life
  • Strong Contracts: Long-term charter agreements or Part 91 management
  • Personal Guarantees: Principals willing to guarantee debt

Launching or expanding your Part 135 operation? Our team specializes in commercial aircraft financing and understands the unique challenges of charter operations. Contact us today for expert guidance.

Don't Get Grounded: Key FAA Regulations That Directly Impact Your Aircraft Loan

Understanding FAA requirements helps operators maintain compliance and satisfy lender concerns about regulatory risk.

Part 135 Certification Requirements

Mandatory certifications for commercial operations:

  • Air Carrier Certificate: FAA-issued certificate required before operations
  • Operations Specifications: Detailed operational authorizations (OpSpecs)
  • Aircraft Eligibility: Aircraft must meet Part 135 equipment and performance standards
  • Pilot Requirements: Commercial certificates with instrument ratings; specific experience requirements
  • Drug Testing Program: DOT-mandated drug and alcohol testing
  • Training Programs: Approved pilot and maintenance training programs

Operational Limitations

Part 135 imposes specific restrictions:

  • Flight and Duty Time: Strict limits on pilot hours and rest requirements
  • Weather Minimums: Higher minimums than Part 91 for many operations
  • Maintenance Requirements: More frequent inspections and component tracking
  • Weight and Balance: Specific requirements for passenger and cargo loading
  • Record Keeping: Extensive operational and maintenance documentation
  • International Operations: Additional requirements for cross-border flights

Impact on Aircraft Selection

Not all aircraft qualify for Part 135:

  • Certification Standards: Aircraft must meet specific certification basis (Part 23/25/27/29)
  • Equipment Requirements: Specific avionics and safety equipment mandated
  • Seating Configuration: Limitations based on aircraft size and configuration
  • Performance Standards: Takeoff, landing, and enroute requirements
  • Age Restrictions: Some operations limited by aircraft age
  • Modification Approvals: STCs must be Part 135 compatible

Compliance Monitoring

Ongoing regulatory obligations:

  • FAA Inspections: Regular surveillance and spot inspections
  • Record Audits: Documentation reviews of flight time, maintenance, training
  • Safety Management: Voluntary and mandatory safety reporting
  • Certificate Renewals: Periodic certificate validation
  • Enforcement Actions: Violations can result in certificate suspension

Lender Due Diligence

How lenders evaluate regulatory compliance:

  • Certificate Verification: Confirming valid Part 135 certificate
  • OpSpecs Review: Understanding operational authorizations
  • Enforcement History: Checking for past violations or suspensions
  • Insurance Requirements: Verifying adequate commercial coverage
  • Safety Record: Reviewing accident and incident history
  • Financial Stability: Assessing impact of regulatory changes

Regulatory Risk Mitigation

Protecting against compliance issues:

  • Compliance Management Systems: Software for tracking requirements
  • Legal Counsel: Aviation attorneys familiar with Part 135
  • Industry Associations: NATA membership for resources
  • Continuing Education: Staying current with regulatory changes
  • Internal Audits: Proactive compliance reviews
  • Safety Culture: Employee training and reporting programs

Loan vs. Leaseback: Inside the Top Financing Structures for Your Charter Business

Part 135 operators have several financing options, each with distinct advantages and tax implications.

Traditional Aircraft Loans

Conventional debt financing:

  • Term Loans: Fixed-term financing with balloon or full amortization
  • Typical Terms: 7-15 years for turbines; shorter for pistons
  • Down Payment: 20-30% for established operators
  • Interest Rates: 7.5% - 10.5% depending on creditworthiness
  • Collateral: Aircraft serves as primary collateral
  • Personal Guarantees: Often required, especially for newer operators

Aircraft Leasing

Operating and finance lease options:

  • Operating Leases: Lower monthly payments; lessor retains residual value
  • Finance Leases: Similar to loans; lessee assumes residual risk
  • Lease Terms: Typically 5-10 years
  • Maintenance Reserves: Often required to cover future maintenance
  • Return Conditions: Strict requirements for lease-end condition
  • Balance Sheet Impact: Operating leases may offer off-balance-sheet treatment

Aircraft Leaseback Programs

Aircraft leaseback Part 135 arrangements:

  • Structure: Owner purchases aircraft; leases to charter operator
  • Revenue Sharing: Owner receives portion of charter revenue
  • Operating Control: Charter operator manages all operations
  • Owner Benefits: Offset ownership costs; tax advantages
  • Operator Benefits: Fleet expansion without capital expenditure
  • Financing: Owner arranges purchase financing

For detailed leaseback analysis, see our aircraft leaseback programs guide.

Fractional Ownership

Shared ownership models:

  • Part 91K Operations: Fractional ownership under Subpart K
  • Management Companies: Professional management handles operations
  • Financing: Individual shares financed separately
  • Usage Rights: Guaranteed hours based on ownership percentage
  • Exit Strategies: Resale programs through management company

Seller Financing

Owner-carryback arrangements:

  • Structure: Previous owner holds note on aircraft
  • Terms: Negotiable; often shorter than traditional loans
  • Interest Rates: May be higher than institutional rates
  • Advantages: Faster closing; flexible terms
  • Risks: Seller's financial stability; lien priority

Equipment Finance Agreements

Alternative lending structures:

  • EFA Structure: Similar to loans but different legal treatment
  • Tax Benefits: May offer favorable depreciation treatment
  • Documentation: Simpler than traditional loans
  • Flexibility: May allow seasonal payment structures

Tax Considerations

Structure selection affects tax treatment:

  • Depreciation: MACRS schedules vary by structure
  • Section 179: Immediate expensing may apply
  • Interest Deductibility: Business interest generally deductible
  • Sales Tax: Leases may have different tax treatment
  • Passive Activity Rules: Limits on losses for some structures

Consult aviation tax specialists for specific advice.

The Lender's Playbook: How to Get Approved for Part 135 Aircraft Financing

Successful financing requires thorough preparation and understanding of lender expectations.

Building Your Financial Package

Essential documentation for lenders:

  • Business Financials: 3 years tax returns and current financial statements
  • Revenue History: Detailed charter revenue by aircraft and route
  • Operating Metrics: Hours flown, revenue per hour, load factors
  • Cash Flow Projections: 3-5 year forecasts for new aircraft
  • Debt Schedule: All existing obligations and payment history
  • Personal Financials: Guarantor financial statements and tax returns

Demonstrating Operational Competence

Prove your operational capabilities:

  • Part 135 Certificate: Current and in good standing
  • OpSpecs Documentation: Detailed operational specifications
  • Safety Record: Clean or minimal incident history
  • Management Team Bios: Leadership qualifications and experience
  • Pilot Roster: Current pilot qualifications and experience
  • Training Programs: Approved training and currency documentation

Aircraft-Specific Documentation

Support your aircraft selection:

  • Market Analysis: Why this aircraft fits your operation
  • Utilization Plan: Expected hours and revenue generation
  • Maintenance Status: Current condition and remaining component life
  • Insurance Quotes: Commercial coverage availability and cost
  • Configuration Details: Interior and equipment specifications
  • Part 135 Eligibility: Documentation of compliance

Credit Enhancement Strategies

Strengthening your application:

  • Additional Collateral: Real estate or equipment pledges
  • Strong Guarantors: Principals with strong personal credit
  • Escrow Reserves: Maintenance and operating reserves
  • Letter of Credit: Bank guarantees for payment security
  • Cross-Corporate Guarantees: Support from affiliated companies
  • Lease Agreements: Pre-committed charter contracts

Presenting Your Business Case

Compelling narrative elements:

  • Market Opportunity: Demand analysis and competitive positioning
  • Growth Strategy: How aircraft fits expansion plans
  • Revenue Diversification: Multiple revenue streams reduce risk
  • Operational Advantages: Why your operation succeeds
  • Risk Mitigation: How you'll handle challenges
  • Exit Strategy: Plans if operations don't meet projections

Working With Specialized Lenders

Finding the right financing partner:

  • Aviation Specialists: Lenders experienced with Part 135
  • Industry Relationships: Lenders who understand charter business
  • Flexible Structures: Willingness to customize terms
  • Competitive Rates: Shop multiple providers
  • Portfolio Lenders: Asset-based approaches
  • Broker Networks: Access to multiple funding sources

Preparing for Due Diligence

Anticipate lender investigation:

  • Site Visits: Lenders may tour facilities
  • Record Reviews: Detailed financial and operational documentation
  • Reference Checks: Vendor and customer references
  • Background Checks: Principals' personal and business history
  • Market Verification: Independent validation of market claims

Timeline Expectations

Typical approval process:

  • Initial Review: 1-2 weeks for preliminary assessment
  • Documentation: 2-3 weeks gathering required materials
  • Credit Committee: 1-2 weeks for approval decision
  • Closing Preparation: 2-3 weeks documentation and due diligence
  • Total Timeline: 6-10 weeks typical; complex deals may take longer

Frequently Asked Questions About Part 135 Aircraft Financing

Can I get financing for a Part 135 startup with no operating history?

Financing Part 135 startups is challenging but possible with proper structure. Lenders evaluate startup risk differently than established operations. Expect requirements: strong personal guarantees from principals with significant net worth; larger down payments (30-40% vs. 20% for established operators); shorter loan terms (7-10 years vs. 10-15); higher interest rates (premium of 1-2% above established operator rates); personal credit scores 720+ for all guarantors; detailed business plan with market analysis and financial projections; Part 135 certificate already obtained or in final stages; significant liquid reserves (12+ months operating expenses); and possibly additional collateral (real estate, equipment). Some lenders specialize in startup financing but charge premium rates. Consider phased approach—start with less expensive aircraft to establish track record before upgrading. Alternative: leaseback arrangements where you own aircraft but charter operator manages operations reduces startup capital requirements.

What interest rates can I expect for Part 135 aircraft financing?

Part 135 aircraft financing rates typically run 0.5-2% above comparable Part 91 financing due to higher perceived risk. Current market ranges (2026): established operators with strong credit—turbine aircraft 7.5%-9.5%, pistons 8.5%-10.5%; moderate credit or newer operators—turbine 8.5%-11%, pistons 9.5%-12%; startup operations or marginal credit—turbine 10%-13%, pistons 11%-14%. Rate factors include: operator experience and financial track record; aircraft age, type, and value; loan amount and structure; down payment percentage; personal credit of guarantors; market conditions and interest rate environment; and lender competition for the deal. To secure best rates: build 2+ years operating history before major aircraft purchases; maintain strong credit (750+); offer larger down payments; provide strong personal guarantees; demonstrate diversified revenue streams; and shop multiple lenders. Consider fixed vs. variable rate structures based on your risk tolerance and market outlook.

Is leasing better than buying for Part 135 operations?

Leasing vs. buying involves trade-offs depending on your situation. Leasing advantages: lower monthly payments preserve cash flow; no residual value risk; tax benefits (operating lease payments fully deductible); flexibility to upgrade aircraft; balance sheet treatment (operating leases off-balance-sheet); and maintenance reserves may be included. Leasing disadvantages: no equity buildup; strict return conditions; limited customization; early termination penalties; and potentially higher total cost over long term. Buying advantages: build equity over time; complete control over aircraft; depreciation benefits; ability to customize; and potential appreciation. Buying disadvantages: higher monthly payments; residual value risk; balance sheet debt; and maintenance responsibility. Many operators use hybrid approaches—lease for new market entry or uncertain demand; purchase proven revenue generators. Consider lease-to-own options where lease payments apply toward purchase. Evaluate total cost of ownership including tax implications.

Can I use personal aircraft for Part 135 operations?

Using personally owned aircraft for Part 135 operations is possible but requires careful structure. Key considerations: aircraft must meet Part 135 equipment and certification requirements; FAA operating certificate required for Part 135; owner must lease aircraft to Part 135 operator (leaseback structure); lease payments to owner must reflect fair market value; owner cannot directly operate under Part 135 without certificate; insurance must cover commercial operations; and depreciation and interest deductions subject to passive activity limitations. Structure options: create your own Part 135 certificate; lease aircraft to existing Part 135 operator; or partner with charter management company. Legal and tax complexities require professional advice. Personal use of aircraft under leaseback arrangement may create tax issues. Ensure lease agreement addresses: operating control (Part 135 operator must have operational control); maintenance responsibility; insurance requirements; revenue sharing; and termination conditions.

What happens to my financing if I lose my Part 135 certificate?

Losing Part 135 certificate constitutes a default event under most aircraft financing agreements. Consequences include: acceleration clause—entire loan balance becomes immediately due; cross-default provisions—other loans or leases may also default; loss of operating revenue—inability to generate charter income; difficulty refinancing—no operating certificate blocks replacement financing; and potential aircraft repossession—lender may seize collateral. Protect yourself by: maintaining strong compliance programs; promptly addressing FAA concerns; carrying loss-of-license or business interruption insurance; building cash reserves for 6-12 months operations; and negotiating cure periods in loan documents (e.g., 60-90 days to restore certificate). If facing certificate suspension: immediately notify lender (hiding worsens situation); negotiate forbearance agreement if temporary; seek emergency financing if needed; and consider Part 91 operations temporarily if permitted. Prevention through strong compliance programs is far better than remediation.

How does insurance work for financed Part 135 aircraft?

Part 135 insurance requirements significantly exceed Part 91 and directly impact financing. Lender requirements typically include: hull coverage equal to loan amount or aircraft value (whichever higher); liability minimums of $5 million-$200 million depending on aircraft size and operation; all-risk coverage including war and terrorism; agreed value vs. actual cash value policies; lender named as loss payee and additional insured; and deductible limits (often maximum $100,000-$500,000). Insurance costs for Part 135 typically run 3-8% of hull value annually—substantially higher than Part 91 rates. Factors affecting premiums include: aircraft type, age, and value; operator experience and safety record; geographic operations; passenger capacity; and claims history. Obtaining coverage requires: FAA certificate verification; pilot experience documentation; maintenance program details; operational safety record; and inspection of aircraft and facilities. Work with aviation insurance specialists familiar with Part 135. Budget insurance carefully—it often surprises new operators.

Can I refinance my Part 135 aircraft to get better terms?

Refinancing Part 135 aircraft works similarly to personal aircraft refinancing but with additional complexity. Refinance triggers: interest rates declined since original financing; your operator creditworthiness improved; aircraft equity increased through appreciation or amortization; want to extend term for lower payments; or need to access equity for business expansion. Refinance process: same documentation as original financing; current financials and operating history; updated appraisal; new insurance quotes; and lender due diligence. Costs: appraisal ($1,000-$3,000); documentation and legal ($1,000-$2,000); title search and recording ($500-$1,000); and possible prepayment penalties on existing loan. Benefits: lower monthly payments; improved cash flow; better loan structure; or access to equity. Challenges: refinancing with new operator may be difficult; market changes may affect terms; and documentation burden similar to original financing. Calculate break-even point—monthly savings should recover costs within 2-3 years.

What should I look for in a Part 135 financing partner?

Selecting the right financing partner is crucial for long-term success. Key criteria: Part 135 experience—lender understands charter operations and risks; competitive rates—shop multiple providers for best terms; flexible structures—willingness to customize for your situation; relationship approach—viewed as partner not just transaction; industry knowledge—understands market cycles and aircraft values; responsive service—quick decisions and clear communication; additional services—may offer insurance, management, or consulting; and financial stability—established institution with staying power. Red flags to avoid: lenders who don't understand Part 135 regulations; bait-and-switch rate quotes that change during process; excessive fees or prepayment penalties; poor communication or unresponsiveness; and pressure to close before you're ready. Interview multiple lenders—ask about their Part 135 experience, typical deal structures, and references from charter operators. Consider aviation finance brokers who can access multiple lenders and negotiate on your behalf.

How do I structure a leaseback arrangement for Part 135?

Part 135 leaseback structures allow aircraft owners to generate revenue while others operate. Structure components: owner purchases and finances aircraft; owner leases aircraft to Part 135 certificate holder; Part 135 operator provides crew, maintenance, and management; operator pays owner agreed lease rate or revenue share; and owner may use aircraft for personal flights when available. Key agreement provisions: lease rate or revenue percentage; operating control (FAA requirement); maintenance responsibility and reserves; insurance requirements; use restrictions; and termination conditions. Financial considerations: lease income taxable as ordinary income; depreciation available to owner; operating expenses typically operator's responsibility; and revenue sharing vs. fixed lease payments. Risks: operator failure; aircraft damage or excessive wear; and market downturns reducing demand. Due diligence: operator's Part 135 certificate and safety record; financial stability; leaseback experience; and references from other aircraft owners. Legal structure requires aviation attorney familiar with Part 135 leaseback arrangements.

Can I get financing for multiple aircraft simultaneously?

Financing multiple aircraft simultaneously is common for expanding Part 135 operations. Approaches include: portfolio financing—single loan covering multiple aircraft with blanket lien; individual aircraft loans—separate loans for each aircraft; fleet financing—lender provides credit facility for ongoing acquisitions; and lease arrangements—operating leases for some aircraft. Lender considerations: total exposure and concentration risk; operator's ability to manage growth; revenue diversification across multiple aircraft; maintenance and operational capacity; and management team bandwidth. Expect: stronger financial requirements for multiple aircraft; cross-default provisions (default on one aircraft affects all); possibly better terms due to larger relationship; more extensive due diligence; and longer approval timelines. Structure considerations: stagger acquisitions to demonstrate successful integration; match financing terms to aircraft revenue generation; consider mix of owned and leased aircraft; and maintain adequate cash reserves for multiple aircraft operations. Portfolio approach may offer economies of scale in financing costs.

Launch or Expand Your Part 135 Operation

Part 135 aircraft financing requires specialized knowledge and careful planning. Don't navigate this complex landscape alone.

Contact JakenAviation today for expert guidance on financing your charter operation. Our specialists understand the unique requirements of Part 135 financing and can help you secure optimal terms.

Start Your Part 135 Financing