Page 21 - AAA JANUARY - FEBRUARY 2014 Online Magazine

FEATURE LEASING

for 54 new 737s from Boeing. “We will been a slightly variable industry of late, and common, is a dry lease, which is
probably take the aircraft on a 50-50 specialist investors with money to spare simply taking the hardware (aircraft) and
lease/ownership basis to make sure we want to put it into something that will last supplying all the operational staff and
will safeguard ourselves in terms of the and be worth something if the business ancillaries from your own company. In
residual basis.” Which underlines the does go wrong – property and resources both case, the operator never actually
conundrum about leasing; although the also rate in the same bracket. Aircraft are owns the aircraft, but just leases the use
lease companies do offer an essential relatively easy to repossess and resell, of its capacity. While leased aircraft are the
service to many operators, they are in it and hard to spirit away to a foreign land staple of LCC start-ups, the system applies
to make money – which has to come from by a defaulter. when any carrier is trying to minimise
somewhere. And that somewhere is the And lastly, as the last few years have immediate costs, so might opt for a simple
operator, or lessee. shown, some aircraft on some routes operating lease where the aircraft never
There certainly is big money in have fallen hopelessly behind in terms of belongs to the airline and is returned at the
leasing; that shiny new narrow body, operating efficiency – look at the 747 for an end of the lease period. Finance leases see
multiplied a few times a year, can net the example. Leasing means the depreciation a slightly different result, as the aircraft
leasing company’s rep a pay packet that and operating variables are no longer ownership transfers to the airline at the
even Bill Gates might think excessive. owned by the operator, they can be passed end of the lease- but with the downside
For example, some staff at Dublin-based sideways to the lessor who has to dispose that the aircraft value sits on the airline’s
BOC Aviation (Ireland) Ltd each pocketed of the asset at the end of its useful life. So accounts and may depreciate, and reflect
salaries and bonuses totalling of over leasing is definitely here to stay, but is now lower profits. In both cases, the lease term
US$1million in 2011. So given those being seen more as a business tool rather is usually somewhere between three and
extra costs must be passed on to the than a quick but expensive way to get an seven years.
users – yet airfares still keep dropping in aircraft in the air. In a recent interview, Bill Collins, VP
relative terms – why do operators carry for leasing and asset management sales
on leasing rather than buying? Wet and Dry at Boeing, noted that leasing aircraft is
Several reasons make leasing aircraft Two kinds of aircraft lease predominate. especially attractive to under-capitalised
an attractive proposition. First, cash The first is wet lease, where the carrier start-ups that lack the major airlines’
flow. A start up LCC usually has lots of leases the complete package of aircraft, ability to meet pre-delivery payments or
potential business, plenty of permits crew, fuel and all operational necessities. to source debt on the open market. “We
in the locker and staff ready to roll. But The second, and perhaps more popular are committed to supporting [lessors]
finding (and financing) that US80million
jet is often just too hard. Reducing the
outgoings to a lower monthly payment
makes things much more predictable and
accountable – and initially affordable as
well as keeping balance sheets looking
blacker. Second, the explosive growth aircraft on some routes have fallen
of LCCs means there is a huge demand hopelessly behind in terms
for aircraft, which means huge demand of operating efficiency
for money to buy them. As banks are not
always that happy to lend to what has
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