Aircraft leasing
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Aircraft leases are
lease A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial ...
s used by
airline An airline is a company that provides air transport services for traveling passengers and freight. Airlines use aircraft to supply these services and may form partnerships or alliances with other airlines for codeshare agreements, in wh ...
s and other aircraft operators. Airlines lease aircraft from other airlines or leasing companies for two main reasons: to operate aircraft without the financial burden of buying them, and to provide temporary increase in capacity. The industry has two main leasing types: wet-leasing, which is normally used for short-term leasing, and dry-leasing which is more normal for longer-term leases. The industry also uses combinations of wet and dry. For example, when the aircraft is wet-leased to establish new services, then as the airline's flight or cabin crews become trained, they can be switched to a dry lease.


Market

Operating lease The expression "operating lease" is somewhat confusing as it has a different meaning based on the context that is under consideration. From a product characteristic stand point, this type of a lease, as distinguished from a finance lease, is one w ...
s of jet airliner accounted for less than 2% of the fleet in 1976, then 15% in the early 1990s, 25% in 2000 and 40% in 2017, with lessors involved in 62% of
second hand Used goods mean any item of personal property offered for sale not as new, including metals in any form except coins that are legal tender, but excluding books, magazines, and postage stamps. Risks Furniture, in particular bedding or upholstere ...
mid-life aircraft transactions since 2000: 42% in Europe and 29% in North America. In 2015, over $120 billion of commercial aircraft were delivered worldwide and half of the global lessors were based in
Ireland Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
. Having an aggressive growth mandate, more aggressive, smaller entrants have overpaid for many of their assets in the sale and leaseback market and are then undercharged on lease rates in order to win the business, with lower maintenance reserves and return conditions: lease-rate factors have fallen to 0.6% per month (% per year), even reaching 0.55% (% per year). Despite
Air Berlin Air Berlin PLC & Co. Luftverkehrs KG (), branded as airberlin or airberlin.com was a major German airline. At its peak, it was Germany's second-largest airline, as well as Europe's tenth-largest airline in terms of passengers carried. It was h ...
and Monarch Airlines bankruptcies, their leased aircraft have been rapidly placed at "normal market rates" due to traffic growth as global revenue passenger kilometers are up by 7.7% over one year through September 2017, and
Airbus Airbus SE (; ; ; ) is a European multinational aerospace corporation. Airbus designs, manufactures and sells civil and military aerospace products worldwide and manufactures aircraft throughout the world. The company has three divisions: ' ...
struggles to deliver
A320neo The Airbus A320neo family is a development of the A320 family of narrow-body airliners produced by Airbus. The A320neo family (''neo'' for "new engine option") is based on the previous A319, A320 and A321 ( enhanced variant), which was then ren ...
s due to engine supply delays. In 2007,
Beijing } Beijing ( ; ; ), alternatively romanized as Peking ( ), is the capital of the People's Republic of China. It is the center of power and development of the country. Beijing is the world's most populous national capital city, with over 21 ...
allowed Chinese banks to start leasing units, and nine Chinese lessors were part of the 50 largest in 2017, led by
ICBC Industrial and Commercial Bank of China Limited (ICBC; ) is a Chinese multinational bank. Founded as a limited company on 1 January 1984, ICBC is a state-owned commercial bank. With capital provided by the Ministry of Finance of China, the b ...
leasing in the top ten, having the value of their managed fleet grew by 15% since 2016. In a few cases, Chinese lessors forgot they had to get secondary leases and missed the redelivery timing, stranding aircraft for a few months. Rentals are often anchored to
LIBOR The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. The resulting average rate is u ...
rates.
A320neo The Airbus A320neo family is a development of the A320 family of narrow-body airliners produced by Airbus. The A320neo family (''neo'' for "new engine option") is based on the previous A319, A320 and A321 ( enhanced variant), which was then ren ...
and B737 MAX 8 lease rates are $20-30,000 higher than their predecessors: by 2018, a B737-8 can be leased for slightly more than $385,000 per month and a 12 year term with a good credit can be lower than $370,000 per month for an A320neo (0.74% of its around $49 million
capital cost Capital costs are fixed, one-time expenses incurred on the purchase of land, buildings, construction, and equipment used in the production of goods or in the rendering of services. In other words, it is the total cost needed to bring a projec ...
), generating $53 million of revenue and over $8.5 million in an end of lease compensation for
maintenance Maintenance may refer to: Biological science * Maintenance of an organism * Maintenance respiration Non-technical maintenance * Alimony, also called ''maintenance'' in British English * Champerty and maintenance, two related legal doct ...
, while still being worth $20 million. Airlines which cannot afford a good deal on factory direct aircraft or carriers who prefer to maintain flexibility can lease their aircraft with an
operating lease The expression "operating lease" is somewhat confusing as it has a different meaning based on the context that is under consideration. From a product characteristic stand point, this type of a lease, as distinguished from a finance lease, is one w ...
or a
finance lease A finance lease (also known as a capital lease or a sales lease) is a type of lease in which a finance company is typically the legal owner of the asset for the duration of the lease, while the lessee not only has operating control over the asset, b ...
.


Wet lease

A wet lease is a leasing arrangement whereby one
airline An airline is a company that provides air transport services for traveling passengers and freight. Airlines use aircraft to supply these services and may form partnerships or alliances with other airlines for codeshare agreements, in wh ...
(the lessor) provides an aircraft, complete crew, maintenance, and insurance (ACMI) to another airline or other type of business acting as a
broker A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be confu ...
of air travel (the
lessee A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industria ...
), which pays by hours operated. The lessee provides fuel and covers airport fees, and any other duties, taxes, etc. The flight uses the
flight number In the aviation industry, a flight number or flight designator is a code for an airline service consisting of two-character airline designator and a 1 to 4 digit number. For example, "BA 98" is a British Airways service from Toronto-Pearson to ...
of the lessee. A wet lease generally lasts 1–24 months. A wet lease is typically utilized during peak traffic seasons or annual heavy maintenance checks, or to initiate new routes. A wet-leased aircraft may be used to fly services into countries where the lessee is banned from operating. It can also be used to replace unavailable capacity or to circumvent regulatory or political restrictions. They can also be considered a form of charter whereby the lessor provides minimum operating services, including ACMI, and the lessee provides the balance of services along with flight numbers. In all other forms of charter, the lessor provides the flight numbers. Variations of a wet lease include a code share arrangement, a block seat agreement, and a capacity purchase agreement. Wet leases are occasionally used for political reasons. For instance, EgyptAir, an Egyptian government enterprise, for many years was not allowed to fly to
Israel Israel (; he, יִשְׂרָאֵל, ; ar, إِسْرَائِيل, ), officially the State of Israel ( he, מְדִינַת יִשְׂרָאֵל, label=none, translit=Medīnat Yīsrāʾēl; ), is a country in Western Asia. It is situated ...
under its own name, as a matter of
Egypt Egypt ( ar, مصر , ), officially the Arab Republic of Egypt, is a transcontinental country spanning the northeast corner of Africa and southwest corner of Asia via a land bridge formed by the Sinai Peninsula. It is bordered by the Medit ...
ian government policy. Hence Egyptian flights from
Cairo Cairo ( ; ar, القاهرة, al-Qāhirah, ) is the Capital city, capital of Egypt and its largest city, home to 10 million people. It is also part of the List of urban agglomerations in Africa, largest urban agglomeration in Africa, List of ...
to
Tel Aviv Tel Aviv-Yafo ( he, תֵּל־אָבִיב-יָפוֹ, translit=Tēl-ʾĀvīv-Yāfō ; ar, تَلّ أَبِيب – يَافَا, translit=Tall ʾAbīb-Yāfā, links=no), often referred to as just Tel Aviv, is the most populous city in the ...
were operated by
Air Sinai Air Sinai ( ar, سيناء للطيران ') was an airline based in Cairo, Egypt. It operated as a 'paper airline' for parent company Egyptair under a wet lease-like agreement to serve flights exclusively between Egypt and Israel. History The ...
, which wet-leased from EgyptAir to circumvent the political issue. In 2021, Egypt changed its policy and EgyptAir started operating flights to Israel under its own banner. The global wet lease market is projected to grow from US$7.35 billion in 2019 to US$10.9 billion in 2029, a compound annual growth rate (
CAGR Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some ele ...
) of 4.1%.


Dry lease

A dry lease is a leasing arrangement whereby an aircraft financing entity (lessor), such as
AerCap AerCap Holdings N.V. is an Irish aircraft leasing company based in Dublin. It became the largest aircraft leasing company in the world after acquiring International Lease Finance Corporation (ILFC) in 2014, then GECAS from General Electric in ...
or
Air Lease Corporation Air Lease Corporation (ALC) is an American aircraft leasing company founded in 2010 and headed by Steven F. Udvar-Házy. Air Lease purchases new commercial aircraft through direct orders from Boeing, Airbus, Embraer and ATR, and leases them to ...
, provides an aircraft ''without'' crew, ground staff, etc. Dry lease is typically used by leasing companies and banks, requiring the lessee to put the aircraft on its own
air operator's certificate An air operator's certificate (AOC) is the approval granted by a civil aviation authority (CAA) to an aircraft operator to allow it to use aircraft for commercial purposes. This requires the operator to have personnel, assets, and system in plac ...
(AOC) and provide aircraft registration. A typical dry lease lasts upwards of two years and bears certain conditions with respect to depreciation, maintenance, insurances, etc., depending also on the geographical location, political circumstances, etc. A dry-lease arrangement can also be made between a major airline and a regional airline, in which the major airline provides the aircraft and the regional operator provides flight crews, maintenance and other operational aspects of the aircraft, which then may be operated under the major airline's name or some similar name. A dry lease saves the major airline the expense of training personnel to fly and maintain the aircraft, along with other considerations (such as staggered union contracts, regional airport staffing, etc.).
FedEx Express FedEx Express, a subsidiary of FedEx Corporation, is a major American cargo airline based in Memphis, Tennessee, United States. As of 2020, it is one of the world's largest airlines in terms of fleet size and freight tons flown. It is the na ...
uses an arrangement of this type for its feeder operations, contracting to companies such as
Empire Airlines Empire Airlines is a passenger and cargo airline based in Hayden, Idaho, near Coeur d'Alene. It operates over 120 scheduled cargo flights a day in 18 US states and Canada. Empire also started passenger service within Hawaii, under the name "Oh ...
, Mountain Air Cargo, Swiftair, and others to operate its single and twin-engined turbo-prop "feeder" aircraft in the US. DHL has a joint venture in the United States with
Polar Air Cargo Polar Air Cargo Worldwide Inc., a subsidiary of Atlas Air Worldwide Holdings, is a cargo airline based in Purchase, New York, United States. It operates scheduled all-cargo services to North America, Asia, Europe, and the Middle East. Its main ...
, a subsidiary of
Atlas Air Atlas Air, Inc., a wholly owned subsidiary of Atlas Air Worldwide Holdings, is a major American cargo airline, passenger charter airline, and aircraft lessor based in Purchase, New York. Atlas Air is the world's largest operator of the Boei ...
, to operate their domestic deliveries.


Lessors

At the end of July 2015, the top 50 aircraft lessors managed 8,184 aircraft: 511 turboprop
regional airliner A regional airliner or a feederliner is a small airliner that is designed to fly up to 100 passengers on short-haul flights, usually feeding larger carriers' airline hubs from small markets. This class of airliners is typically flown by the r ...
s, 792
regional jet A regional jet (RJ) is a jet-powered regional airliner with fewer than 100 seats. The first one was the Sud-Aviation Caravelle in 1959, followed by the widespread Yakovlev Yak-40, Fokker F-28, and BAe 146. The 1990s saw the emergence of ...
s, 5,612 narrowbody and 1,253 widebody airliners. In 2017, the 150 lessors are managing 8,400 aircraft worth $256 billion with 2,321 aircraft on backlog from 28 of them, their penetration having stabilised at 42.6%. Aircraft lessors are often banks,
hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as s ...
s or financial institutions. Aircraft financing is a $140 billion industry, dominated by Ireland due to the rise and collapse in 1992 of pioneer
Guinness Peat Aviation Guinness Peat Aviation (GPA) was a Commercial Aircraft Sales and Leasing company set up in 1975 by Aer Lingus, the Guinness Peat Group (a London-based financial services company) and Tony Ryan, then an Aer Lingus executive. History GPA was ...
(GPA), of which the former executives manage the largest lessors: Aengus Kelly is the CEO of
AerCap AerCap Holdings N.V. is an Irish aircraft leasing company based in Dublin. It became the largest aircraft leasing company in the world after acquiring International Lease Finance Corporation (ILFC) in 2014, then GECAS from General Electric in ...
, the world's largest, Domhnal Slattery heads the third largest,
Avolon Avolon is an aircraft leasing company based in Dublin, Ireland. It was founded in May 2010 by Dómhnal Slattery and a team from RBS Aviation Capital, including John Higgins, Tom Ashe, Andy Cronin, Simon Hanson and Ed Riley. In December 2014, A ...
, and Peter Barrett runs the fourth,
SMBC Aviation Capital SMBC Aviation Capital, formerly RBS Aviation Capital, is one of the world's largest aircraft leasing companies. It is owned by a consortium of leading Japanese institutions: Sumitomo Mitsui Banking Corporation (SMBC), Sumitomo Mitsui Finance a ...
while the second largest, GECAS, formed from the hulk of GPA. Lessors have a preference for narrowbodies over widebodies due to more remarketing opportunities and the substantial reconfiguration time and cost a larger aircraft requires. Reconfiguring an
Airbus A330 The Airbus A330 is a wide-body aircraft developed and produced by Airbus. Airbus conceived several derivatives of the A300, its first airliner in the mid-1970s. Then the company began development on the A330 twinjet in parallel with the A340 ...
-300 can cost $7 million and even more for a
Boeing 777 The Boeing 777, commonly referred to as the Triple Seven, is an American long-range wide-body airliner developed and manufactured by Boeing Commercial Airplanes. It is the world's largest twinjet. The 777 was designed to bridge the gap betw ...
-300ER or an
Airbus A380 The Airbus A380 is a large wide-body airliner that was developed and produced by Airbus. It is the world's largest passenger airliner and only full-length double-deck jet airliner. Airbus studies started in 1988, and the project was annou ...
: introducing IFE - $1.5 million ($5,000 per seat), replacing business seats - $1.5 million ($30,000 each), replacing economy seats - $1 million ($5,000 each), a new lavatory or galley - $100,000, moving a monument - $35,000, class dividers - $50,000,
passenger service unit A passenger service unit (PSU) is an aircraft component situated above each row in the overhead panel above the passenger seats in the cabin of airliners. Among other things, a PSU contains reading lights, loudspeakers for announcements, illumina ...
s - $9,000 per passenger, sidewall panels - $6,000 each, updating the IFE database - $125,000, repainting the aircraft - $100,000, engineering costs - $100,000.


United Kingdom

In the United Kingdom, a wet lease refers to an aircraft lease in which the aircraft is operated under the
air operator's certificate An air operator's certificate (AOC) is the approval granted by a civil aviation authority (CAA) to an aircraft operator to allow it to use aircraft for commercial purposes. This requires the operator to have personnel, assets, and system in plac ...
(AOC) of the lessor.UK Civil Aviation Authority – Aircraft Leasing
/ref> An arrangement where the lessor provides the aircraft, flight crew and maintenance but the lessee provides the cabin crew is sometimes referred to as a "damp lease", a term especially used in the UK. It is also occasionally referred to as a "moist lease". In the United Kingdom, a dry lease is when an aircraft is operated under the AOC of the lessee.


References


Further reading

* {{DEFAULTSORT:Aircraft Lease Aviation agreements Vehicle rental Aircraft finance Leasing Economy of the Republic of Ireland