Aircraft leasing

Asset management

Finding the correct finance structure for your aircraft purchase is specialist work. Asset finance and leasing requires an in-depth knowledge of domestic and cross-border structures, jurisdictions and title on assets.

Aircraft leasing

Aircraft leasing is an alternative to outright purchase and is either a lease purchase or a dry lease.

Lease agreements of less than two years are usually conducted under an ACMI/Wet Lease agreement. For periods of time over two years then it is more financially beneficial to either enter a dry lease / purchase agreement or purchase the aircraft outright.

The main idea behind leasing rather than purchase is to defer the tax benefits of ownership and avoid equity being tied up in aircraft that can be better used elsewhere.

ACMI wet lease

ACMI stands for Aircraft, Crew, Maintenance & Insurance. The lessor provides the aircraft, one or more complete crews (flight deck, cabin attendants and engineers) including their salaries but usually not their daily allowances, all maintenance for the aircraft and insurance, which usually includes hull and third party liability. The lessor will charge for the block hour (choc off to choc on) and will usually set a minimum guaranteed block hours limit per month.The lessee must then pay the amount for the minimum guaranteed block hours. The period can go from one month up to two years. Ad-hoc charter is used for anything less than a month.

All other operating charges and expenses are born by the lessee. An ACMI lease requires the lessee to provide his own flight number, so that the bills can be directed to him. Consequently, an ACMI lease usually only takes place between two ICAO member states airlines.

Aircraft financial lease 

There are two types of dry lease, Operational & Financial lease.

Aircraft dry lease

Dry lease is the lease of the basic aircraft without insurances, crew, maintenance etc. Dry lease is favoured by leasing companies and banks. A dry lease puts the responsibility for the aircraft more with the lessee. The aircraft is registered to him. Depreciation, maintenance, insurances etc. are all taken into account.

There is generally two types of dry lease, an Operating Lease and a Finance Lease.

An operating lease is shorter term and the aircraft doesn't appear on the lessee's balance sheet.

A finance lease or capital lease, has an option to purchase the aircraft at an agreed price at the end off the lease. Either the lease payments are more than 90% of the market value of the aircraft or the term of the lease is over 75% of the aircraft's usable life.

With a finance lease the aircraft appears on the lessee's balance sheet as a purchase.

It is of course still possible to have an outright purchase where a loan is provided. Ownership of the aircraft is transferred to the purchasing company under a mortgage.

Asset management and tax benefits  

Different tax benefits are available with either option. Ensuring the right finance product and provider is quite difficult unless you’re practiced.