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What the term sheet doesn't say.
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"An airline that models only the stated interest rate when evaluating capital has not read its own covenant package. The real cost is in the constraints, not the coupon."— Representative Industry View, 2025
The hidden cost stack.
- Debt covenants restrict capacity deployment decisions without lender consent.
- Collateral lock-up removes aircraft from alternative financing strategies.
- Credit rating drag increases the cost of all subsequent capital raises.
- Fixed repayment schedules create cash flow mismatches during demand troughs.
- Refinancing risk concentrates at the worst point in the cycle.
Total cost comparison, modelled.
| Cost Component | Bank Loan | Bond / NCD | FleetBloc™ |
|---|---|---|---|
| Stated Rate | 11.5% | 10.2% | Revenue-linked |
| Covenant Drag | 2.1% | 1.4% | Nil |
| Collateral Cost | 1.8% | 0.9% | Nil |
| Rating Impact | 1.3% | 1.1% | Positive |
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"When you model the full cost of traditional aviation capital, including what you cannot do because of the covenants, the effective cost is rarely below 16%. Non-dilutive alternatives priced against revenue become compelling at that number."
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