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 civil aviation, air transport services for traveling passengers and freight. Airlines use aircraft to supply these services and may form partnerships or Airline alliance, alliances with other airlines for ...
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
Monarch Airlines, also known as Monarch, was a British Air charter, charter and scheduled airline founded by Bill Hodgson and Don Peacock and financed by the Switzerland, Swiss Sergio Mantegazza family. The company later became a low-cost air ...
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 corporation, multinational aerospace corporation. Airbus designs, manufactures and sells civil and military aerospace manufacturer, aerospace products worldwide and manufactures aircraft througho ...
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
This is a list of banks in China, including Mainland China, Hong Kong, and Macau.
The central bank of the People's Republic of China is the People's Bank of China, a component of the State Council, the Central Government of China. The People's ...
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 project to a ...
), 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 doctrine ...
, 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 civil aviation, air transport services for traveling passengers and freight. Airlines use aircraft to supply these services and may form partnerships or Airline alliance, alliances with other airlines for ...
(the
lessor
Lessor may refer to:
* Lessor (leasing), the owner of leased property or the agent authorized on the owner's behalf
* Lessor, Wisconsin, a town in U.S.A.
* Lessor Township, Minnesota, U.S.A.
See also
* Lesser
{{disambig, geo ...
) 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. Industrial ...
), 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
In communications and information processing, code is a system of rules to convert information—such as a letter, word, sound, image, or gesture—into another form, sometimes shortened or secret, for communication through a communication ...
arrangement, a
block seat
Block or blocked may refer to:
Arts, entertainment and media Broadcasting
* Block programming, the result of a programming strategy in broadcasting
* W242BX, a radio station licensed to Greenville, South Carolina, United States known as ''96.3 ...
agreement, and a capacity purchase agreement.
Wet leases are occasionally used for political reasons. For instance,
EgyptAir
Egyptair (Egyptian Arabic
Egyptian Arabic, locally known as Colloquial Egyptian ( ar, العامية المصرية, ), or simply Masri (also Masry) (), is the most widely spoken vernacular Arabic dialect in Egypt. It is part of the Afro-A ...
, 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 Mediter ...
ian government policy. Hence Egyptian flights from
Cairo
Cairo ( ; ar, القاهرة, al-Qāhirah, ) is the capital of Egypt and its largest city, home to 10 million people. It is also part of the largest urban agglomeration in Africa, the Arab world and the Middle East: The Greater Cairo metro ...
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 G ...
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 it ...
, 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 pla ...
(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
The United States Department of Transportation defines a major carrier or major airline carrier as a U.S.-based airline that posts more than $1 billion in revenue during a fiscal year, grouped accordingly as "Group III".
Airlines
According to FY20 ...
and a
regional airline
A regional airline is a general classification of airline which typically operates scheduled passenger air service, using regional aircraft, between communities lacking sufficient demand or infrastructure to attract mainline flights. In North ...
, 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 name ...
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
Mountain Air Cargo (MAC) is an American cargo airline based in Denver, North Carolina. It is a major contract carrier for FedEx Express, operating in the eastern United States and the Caribbean region. Previous turboprop operations in South Ameri ...
,
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 re ...
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 sho ...
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
GECAS (GE Capital Aviation Services) was an Irish–American commercial aviation financing and leasing company. AerCap acquired the company from GE Capital on November 1, 2021.
GECAS was the largest commercial airline leasing/financing company in ...
, 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 bet ...
-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 pla ...
(AOC) of the lessor.[UK Civil Aviation Authority – Aircraft Leasing](_blank)
/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