| Types |
1. ACMI – Aircraft, Crew, Maintenance & Insurance:
Leasing services provide the clients with: Aircraft, Crew, Maintenance & Insurance
It is a type of lease wherein the Lessor provides the aircraft, complete crews (including engineers) including their salaries and allowances, all maintenance for the aircraft and insurance, which usually includes hull and third party liability. He will charge for the block hour and will set a minimum guaranteed block hours limit per month. Lessee has to pay for this minimum guaranteed block hours whether the aircraft flies or not.Besides this, Lessee must provide all fuel, landing/handling/parking/storage fees, crew accommodation, meal and transport. He should also provide passenger/luggage and cargo insurance and overflight/navigation charges.
2. DAMP LEASE:
It means lease of aircraft usually without cabin crew. The lessee has to provide the cabin crew. The Lessor will give cabin crew training of Safety & Emergency Procedures.
3. WET LEASE:
It means the lease of aircraft including its crew. It is like an ACMI lease only. Lease period varies from one month to one to two years.
4. DRY LEASE:
It is the lease of aircraft without crew, maintenance and insurance. Lessee will be responsible for everything. The period starts from two years onwards and has conditions for depreciation, maintenance, insurances, etcIt is charged usually at a fixed rate per month, plus an hourly charge for engine overhauls or replacements and major checks.
These are of two types:
Operating Lease – It is for a short period as against the economic life of aircraft being leased. It ranges from 3-8 years and aircraft is usually returned to the lessor at lease expiration. It provides the airlines the flexibility to launch new aircraft into their fleet and increase or reduce capacity. Customers get the opportunity to totally finance the aircraft without investing any initial capital required.
The lessee can classify the lease payments as operating expenses in its ‘Income Statement’. Leased aircraft need not be shown on the lessee’s Balance Sheet as asset nor the corresponding payments be shown as fixed debt.
Finance Lease – It is the ‘Full pay out’ of the total cost of aircraft and financing charges over the original lease term. It is also known as capital lease. It is shown on the lessee’s balance sheet as purchase of asset. Range in term from 8-12 years. Lessee can also take advantage of tax benefits.
For finance lease, one of the following conditions needs to be fulfilled: |
- At the end of the term, lessee can purchase aircraft at an agreed purchase price.
- Lease payments are more than 90% of the market value of the aircraft
- Term of lease is over 75% of aircraft’s usable life.
|
| Benefits |
| Leasing an aircraft, instead of purchasing is cost effective in case of lack of ready cash. |
| 1. Balance Sheet advantage |
Since, operating lease is not considered a long-term liability, neither the leased asset nor the external funding will be shown in the Balance sheet
|
| 2. Flexible Financing |
With the business growth, need also changes, lessee has an option to add or upgrade through add-on or master leases during the lease term.
|
| 3. Maximize Cash flow |
The customer can tailor the financing to the useful life of asset and fit monthly or yearly cash flow needs.
|
| 4. Conserve working capital and lines of credit |
Leasing consists of 100% external financing. Through it, working capital, lines of credit and asset values are not affected and liquidity is not reduced.
|
| 5. Immediate write-off |
Lease payments are recognized as rental expenses, therefore, accelerated depreciation can be realized.
|
| 6. Flexible End of term choice |
At the end of lease term, Lessee has various alternatives for disposing aircraft. Lessee has options either to return the aircraft, renew the lease or purchase it.
|
| 7. Tax savings |
Lease payment is treated as business expense hence, the lease payments will be fully tax deductible.
|
| 8. Improves financial planning |
Lease payments simplify financial planning and budgeting. Job and project costing will also be easy.
|
| Other Facts |
| Q. What is a Lease? |
Ans. A lease is a contract in which ‘Lessor’ gives the ‘Lessee’ the exclusive right to use and possess its aircraft for specified period of time. The lease contract can be a single transaction or a master lease having continuing arrangement. In either case, lessee needs to make regular payments to the lessor for using its aircraft.
|
| Q. Who is the Lessor and the Lessee? |
Ans. The Lessor is the owner of the aircraft, or an airline operating it on his behalf, or representative acting for him.The lessee is an individual or an organization that takes the aircraft on lease from its owner (Lessor).
|
| Q. What types of aircrafts can be leased? |
Ans. Any commercial aircraft, private jets and helicopters can be leased.
|
| Q. What kind of purchase options are available? |
| Ans. Usually, lease provides an option for the Lessee to purchase the aircraft at the end of the lease term. Various purchase options include: |
- Fixed Purchase – At the end of lease term, lessee can purchase aircraft for a fixed percentage of its original cost.
- Prepaid Purchase – Lessee can purchase aircraft before lease inception.
- Fair market value purchase – Lessee can purchase leased aircraft at the end of lease term at its then fair market value. Fair market value is determined by recognized appraiser/expert in aircraft at the lease expiration.
|
| Q. Who is best suited for leasing? |
Ans. Any individual, Government bodies, Industrial and Construction companies, Medical Institutes, Corporate bodies, etc. goes for Leasing option.
|
| Q. What is Sale leaseback? |
Ans. It is an arrangement whereby leased aircraft is purchased by Lessor from the company owning and using it. Prior to sale leaseback, the aircraft may be subject to a security interest of another party. In such conditions, the secured lender is usually paid off at the time of sale. Before sale leaseback, product may subject to security interest of another party.
|
| Q. What are the advantages of Sale leaseback? |
| Ans. Sale leaseback allows lessee to refinance and provide another source of additional working capital and recognize significant ‘hidden equity’ in depreciated assets. It generates cash, move assets & liabilities off the Lessee’s Balance sheet, transfer residual risk to the Lessor. It eliminates any ongoing tax preference items related to the leased aircraft. |
:: faqs - charter :: 
