The ABCs of AFIC and Balthazar: Overview of Aircraft Non-Payment Insurance Products

In 2021, GTF Associate Fraser Atkins published a version of this article for inclusion in our summer newsletter. Five years later, he revisits the topic with GTF paralegal Alex Cheng, building on how the Aircraft Non-Payment Insurance (ANPI) product has developed over the last half decade.

A number of years have now passed since the terms “AFIC” and “Balthazar” first appeared in the aviation finance market. Since their inception, the ANPI product has been used by many airlines, leasing companies and other market participants as an alternative source of finance for new aircraft beyond the traditional sources of aviation finance, including financings supported by the European Export Credit Agencies and the Export-Import Bank of the United States  (Ex-Im Bank). However, despite becoming more prevalent and even with the recent notable closings of aircraft financings supported by the ANPI product, many aviation market participants still seem unsure what these ANPI products are or how they work.

The ANPI product is a similar concept to export credit support that provides an insurance policy (rather than a guarantee) to lenders, who rely on the credit of the insurers underlying the ANPI product. At its core, the ANPI product protects investors from payment defaults by obligors (namely, customers predominantly made up of airlines and leasing companies, who, for the purposes of this note, shall be referred to as the “Customer”). The insurers underlying the ANPI product assume the Customer’s credit risk as well as the residual value, jurisdictional and structural risks of the financing transaction. This note aims to provide a basic ABC overview to AFIC, Balthazar and the ANPI product, as well as a brief introduction into more recently developed ANPI products from Itasca MGA Limited and SAAFI.

Part A – AFIC

Background

The Aircraft Finance Insurance Consortium, more commonly known as AFIC was established in early 2017 as an alternative source of funding for new aircraft purchases in the absence of readily available financings of Boeing aircraft supported by the Ex-Im Bank at that time. Since 2017, there have been over 100 aircraft financed through the AFIC ANPI product with over 30 different lender and arranger participants. Initially developed as a product for Boeing deliveries, AFIC has since expanded to encompass Embraer commercial aircraft.

AFIC offers an insurance-based aircraft finance product accessed through and managed by Marsh LLC (who acts as exclusive broker). The three direct AFIC insurer counterparties that typically participate on a several basis are: (1) Allianz (rated AA by Standard & Poors (S&P)); (2) AXIS (rated A+ by S&P); and (3) Sompo International (rated A+ by S&P). Typically, one insurer takes 50% exposure and the other two each take 25%. The insurer who takes 50% will lay 25% of the risk to Fidelis. The insurer counterparties may sometimes vary in order to satisfy insurance licencing requirements of the particular jurisdictions in the transaction.

Lenders take a mixture of single-A or double-A risk of a group of insurance companies (each with a separate exposure). This is one of the key differences between AFIC and ECA deals, whereby the lenders effectively take sovereign risk. While the ratings are slightly lower than ECA deals, such insurer ratings are substantially higher than any airline credit (given all airlines globally are in junk bond territory).

AFIC deals are therefore similar to investment grade loans, although with three credits to analyse. Since each insurer counterparty is liable for their own portion, the lenders will have to assess the risk of default by one or more of the insurers. However, the lenders are focused on the credit assessment of the insurer counterparties and therefore do not need to be specialised aircraft lenders (the understanding being that a much broader group of lenders would (theoretically) be able to get involved in AFIC deals as compared to traditional aircraft financings).

The Application and Claims Process

The AFIC ANPI product is primarily marketed to airlines and leasing companies. The typical process for applying for an ANPI product through AFIC works as follows:

1. Customer approaches Boeing/Embraer/Marsh and submits initial request for ANPI product.
2. Boeing (or other relevant party) instructs AFIC to carry out due diligence on Customer and their request.
3. Assuming satisfactory due diligence, AFIC will produce an ANPI term sheet which can be shared as part of an RFP by Customer to lenders/investors, who respond to Customer with funding proposals.

As for the claims process, the following simple steps should be taken:

1. Customer fails to make a scheduled payment (of principal and/or interest).
2. Lender submits notice to AFIC of the missed payment in order for their claim to be processed under the ANPI policy.
3. Insurers will pay 100% of the missed payment (with accrued interest) within a specified time frame.

If it is assumed that payment defaults will continue after the initial payment default, then the insurer counterparties will agree to pay further scheduled payments (to avoid any mismatching of funding arrangements or broken interest periods). Payments will continue until (a) an agreed-upon set period from the first missed payment or (b) the date of the sale of the aircraft, following which the insurer counterparties will pay the balance of outstanding principal and interest. Once the insurer counterparties make the payments to the lenders, the insurer counterparties will be subrogated to the rights of the lenders in respect of those payments, and the insurer counterparties will become entitled to claim from the Customer such payments and to recover such payments in the waterfall on the distribution of any security or sale proceeds.

Documentation and Parties

The documentation process for the AFIC ANPI product involves all parties (i.e, the insurer counterparties, the lenders and the Customer). AFIC’s counsel will typically draft the documentation and coordinate closing.

Documentation is similar to those used for Ex-Im Bank deals with the deal typically being structured as a finance lease transaction including the usual security package, with a security trustee being appointed to hold such security for the insurer counterparties and lenders. The insurer counterparties will nominate an insurer representative to be a party to the transaction documents on their behalf, who will have various consent rights. There will also be an insurer intercreditor agreement, which regulates the rights, obligations and voting among the insurer counterparties. Marsh (together with the insurer representative) will intermediate the negotiation and agreement of the ANPI policy with the lenders. Consideration must be given to insurance law requirements which is usually dealt with under the insurance contract.

Part B – Balthazar

Background

Balthazar is the Airbus equivalent of AFIC and was also developed with Marsh, but through Marsh S.A.S. (a different team from Marsh LLC) as exclusive broker (Marsh S.A.S is based in Europe, whereas Marsh LLC is based in the United States). The Balthazar ANPI product was established in 2018 as an alternative source of financing for new Airbus aircraft in response to the lack of available financings of Airbus aircraft supported by the export credit agencies and the emergence of the AFIC ANPI product. Saying this, perhaps due to Marsh being involved with both ANPI products, the arrangement is fairly similar. While information is not as readily publicly available as compared to AFIC, typical participating lenders in the product include BNPP, CACIB and Natixis, among others (noting that, more recently, a wider range of lenders and financing parties have concluded Balthazar transactions as the product has continued to evolve and gain greater exposure in the market).

Lenders take risk of a group of insurance companies who have an S&P credit rating of at least A- (each with a separate exposure as the Balthazar insurer counterparties participate on a several basis). This is one of the key differences between Balthazar and ECA deals, whereby the lenders effectively take sovereign risk. Similar to AFIC, Balthazar deals are similar to investment grade loans, although with three credits to analyse. Each insurer counterparty is liable for its own portion, and the lenders will have to assess the risk of default by one or more of the insurers.

The Application and Claims Process

The Balthazar ANPI product takes a flexible approach in terms of the application process, whereby lenders, airlines and leasing companies may apply as Customers. An airline or a leasing company interested in accessing Balthazar can directly approach Airbus who will in turn approach Marsh S.A.S. to test market appetite. Having established a market appetite, an approach will be made to potential bank arrangers.

As for the claims process, upon the occurrence of non-payment of scheduled payment (of principal and/or interest), the lenders are required to give written notice of such occurrence to the insurer counterparties, and the lenders are obliged to provide the insurer counterparties with a proof of loss in support of its claim. The insurer counterparties will then process the claim in a timely and efficient manner and make payment to the lenders. Upon payment of a claim amount, the insurer counterparties may request that the lenders subrogate the insurer counterparties to their rights with respect to the claim amount.

Documentation

The Balthazar ANPI product allows parties to use their own transaction documentation granting some flexibility given the lack of the requirement for a strictly harmonised approach. The documentation process is done by way of two streams (running on track): the first track is just the financing parties (and related financing documents), and the second track is the lenders and the insurer counterparties (and the related insurance policy). Typically, lenders’ counsel will draft the documentation (save for the insurance policy which will be specific to each lender) and coordinate with the relevant parties on both tracks of the deal. Notwithstanding the greater drafting flexibility of the Balthazar product (in particular when compared to AFIC), the insurer counterparties and their counsel will still expect that a number of harmonised provisions are incorporated into the financing documentation to address the requirements of the insurers (notwithstanding the fact that the insurer counterparties will not typically be party to the financing documents-instead, they will rely on the subrogation and assignment rights under the insurance policy).

Part C – More Recent Entrants

Itasca MGA Limited

Itasca MGA Limited is a specialised managing general agent (MGA) established in October 2023 by Castlelake, L.P. and Pine Walk Capital Limited (a Fidelis MGU subsidiary). Distinct to other ANPI products, Itasca MGA Limited offers services to a wide range of Customers, and deals with commercial aircraft of all types, unrestricted by OEM or the aircraft’s lifecycle stage. The MGA pools together the insurance capacity from a group of insurers to mitigate credit risk and provide support across a broad spectrum of aircraft financing structures.

SAAFI

The Sompo AXIS Aviation Finance Insurance (SAAFI) ANPI product, resulting from the collaboration between Gallagher Speciality Aerospace, Sompo and AXIS, was first utilised by Turkish Airlines in early 2025 and is primarily marketed towards airline customers with a focus on Airbus deliveries. Through this product, Sompo and AXIS, both reputable and experienced insurers with A+ ratings from S&P, combine their strong insurance capabilities to offer lenders protection through their non-payment insurance policies.

Part D - Product Comparison

Part E – Reasons for Use

While these ANPI products were developed to help cover the lack of recent ECA financing options, ANPI products also have a number of other positives for both the Customer and lenders, including but not limited to the following:

• helping the Customer attract funding at competitive rates due to reduced risk;
• fairly simple transaction structuring (while it functions in a similar way to an export credit supported guarantee, there are no non-commercial constraints on pricing or deal structure (not subject to ECA’s dictating terms, for example) which can accommodate a variety of transaction structures (finance lease, operating lease, JOLCO etc.);
• ANPI offers diversification through a distinct form of funding for airlines;
• ANPI comes at no additional cost to lenders; and
• ANPI helps secure regulatory capital relief for lenders.

While there are clearly many positives, it should be noted that pricing for lenders may be slightly higher than ECA financings given (i) ANPI coverage is on a several basis, meaning extended due diligence (in respect of each insurer counterparty) and a somewhat greater risk of default and (ii) ECA institutions are triple A rated sovereign risks. However, lenders do not need to be specialised aircraft financiers since the underlying credit assessment will be the insurer counterparties-this will enable a larger group of investors to participate in ANPI product-supported aviation finance transactions.

Conclusion

Five years on since our last article on this topic, ANPI has developed from a response to constrained export credit capacity into an established and increasingly diverse part of the aircraft finance market. AFIC and Balthazar remain important reference products, while Itasca MGA and SAAFI demonstrate that the model can be adapted for a wider range of customers, aircraft, lifecycle stages and transaction structures. The common proposition remains straightforward: Lenders advance funds in reliance on highly rated insurance capacity, while the insurers assume the agreed non-payment risk and, following a claim, become economically exposed to the aircraft, the obligor and the relevant jurisdiction. But ANPI is not a uniform substitute for ECA support or unsecured lending – product scope, insurer composition, policy terms, documentation, pricing and claims mechanics vary between platforms and transactions. Accordingly, in choosing whether ANPI is suitable, and which platform is most suitable, the Customer and financing parties must assess not only the obligor and asset, but also the credit and licensing position of each insurer, the conditions to policy response, the allocation of control following a default and the interaction between subrogation rights and the security package.