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Most EXIM Bank supported asset-based aircraft transactions use a finance lease structure. Under this financing structure, a special purpose company (the "SPC") is established to act as (i) the borrower under the EXIM Bank supported financing, (ii) the owner of the EXIM Bank financed aircraft, and (iii) the lessor of the EXIM Bank financed aircraft to the end-user (e.g., the "Airline"). The SPC is usually organized and located in an offshore, tax neutral jurisdiction acceptable to EXIM Bank and the Airline. The owner of the SPC grants EXIM Bank's security trustee a first priority, perfected security interest in its ownership of the SPC by pledging to the security trustee all outstanding shares (or other ownership interests) in the SPC.

As the borrower, the SPC borrows funds from the EXIM Bank guaranteed lender (in the case of a guaranteed loan), or from EXIM Bank (in the case of a direct loan), to purchase the U.S. manufactured aircraft. The amount borrowed under the EXIM Bank supported loan cannot exceed 85% of the net-net invoice price of the aircraft (as per OECD Arrangement guidelines). The SPC typically obtains the balance of the aircraft purchase price from either (i) a commercial financial institution (through the proceeds of a non-EXIM Bank guaranteed commercial loan) or (ii) the Airline (through a non-refundable advance payment of rent under the lease).

As owner of the aircraft, the SPC grants EXIM Bank's security trustee an exclusive first priority, perfected security interest in the EXIM Bank financed aircraft to secure the EXIM Bank supported loan. The EXIM Bank supported loan relating to an EXIM Bank financed aircraft will be secured by such aircraft and will be cross-collateralized with any past or future EXIM Bank financed aircraft.

As lessor of the aircraft, the SPC enters into a lease agreement with the Airline for the lease of the EXIM Bank financed aircraft, the terms of which are the same as the terms of the EXIM Bank supported loan. The SPC provides EXIM Bank's security trustee with an assignment of, and a first priority, perfected security interest in, the lease. The SPC repays the EXIM Bank supported loan and any commercial loan out of the lease rentals paid by the Airline over the term of the lease. The lease rentals paid by the Airline will at all times be sufficient to repay the SPC's loan obligations under the EXIM Bank guaranteed loan and any commercial loan.

Diagram of the Finance Lease Structure