NAFA member David G. Mayer, Partner with Shackelford, McKinley & Norton, discusses ways to buy a plane during tariff uncertainty - but with cash, financing, or leasing?
Buying and financing an aircraft may seem riskier now than in recent memory due to the impact of ever-changing tariffs, recession fears, and geopolitical risks. The sheer lack of clarity and certainty and the undeniable complexity of tariffs appear to be slowing or disrupting aircraft purchase transactions.
Tariffs may raise the purchase price of an aircraft permanently imported into the U.S., including its engines, components, materials, and parts, as I discussed in my recent blog. Under the weight of these factors, what is the path forward in buying, selling, financing, and leasing aircraft consistent with transaction best practices?
Strategy To Purchase an Aircraft Involving Tariffs
As a purchaser, you might focus first on buying an acceptable aircraft considered to be manufactured in the U.S., if available, or an aircraft exempt under the United States-Mexico-Canada Agreement (USMCA), the successor to NAFTA. Even if a seller of an exempt aircraft asks for an elevated price, the asking price might still be less than a similar make and model aircraft subject to a tariff.
Regardless of the origin of an aircraft, it is essential to thoroughly analyze potential tariffs or exemptions and related costs before signing a letter of intent (LOI) to purchase an aircraft, even if you think an exemption applies to the aircraft. Each aircraft will have its own tariff story and exposure.
The LOI, which states the key terms of a purchase, should include provisions on dealing with potential tariffs, including when and where to conduct a pre-buy inspection. For example, the LOI could provide that the pre-buy inspection be conducted in Europe to avoid paying a U.S. tariff unnecessarily if a buyer rejects the airplane in the U.S. and the owner elects to return the aircraft to its base in Europe.
An aircraft purchase agreement (APA) should reflect and expand on the LOI tariff provisions to allow the parties to adjust to evolving tariffs. Consider provisions where the parties might retain mutual rights to terminate a deal (possibly via a specialized form of a “force majeure” clause); create an escrow deposit to fund tariffs; expand tax indemnities to protect against unexpected tariffs, changes in tariff rules, or related claims; and obtain representations and documentation that confirm that tariff exemptions apply. Realistically, the purchaser and seller may need to negotiate terms in their LOI and APA to “share the pain” of tariffs, bonds, and other import costs (possibly in a purchase price adjustment provision).
Strategy To Finance Aircraft Purchases Involving Tariffs
Although financing tariffs dilute the aircraft collateral or residual value coverage for the lender or lessor, that does not mean these financiers cannot or will not make a loan or lease regarding an aircraft, including the aircraft’s tariffs. Competition among financiers practically guarantees this result.
To set the table for negotiations, you should ask your potential lender or lessor how tariffs impact loan or lease pricing and terms, and discuss how to manage finance costs using fixed, floating, and hedging structures, especially if you expect the Federal Reserve to cut or increase interest rates.
You can expect financiers to understand the implications of tariffs on their aircraft loans. Consequently, a financier may feel compelled to reduce the loan or lease term, increase the principal payments during the term, and require loan covenants, including borrower cash flow and net worth coupled with an aircraft’s loan-to-value (LTV) ratio. To put teeth into the LTV, lenders will require a periodic true-up (loan prepayment), if needed, to restore the original LTV and minimize tariff collateral dilution. Depending on the amount of tariffs, financiers may fund them based on a very strong personal guarantee.
Whether the parties import a new or used aircraft, there are three basic ways to acquire an aircraft. You can buy an airplane with cash, use loan proceeds to pay all or a part of the purchase price, or arrange for a third party—a lessor—to purchase and lease an aircraft to you, as the lessee.
This article was originally published by AINsight on May 9, 2025.