Aircraft leasing and finance — funding a jet or helicopter

Leasing in aviation is a tool for managing liquidity. It makes sense when your money earns more in your main business than the financing costs.

Forms of financing

• finance lease — in effect instalments with a buyout: the aircraft sits on the lessor's balance sheet and passes to you at the end of the term
• operating lease — hire for a term with return at the end: this suits you when the aircraft is needed for a defined horizon and without the trouble of selling it
• a loan secured on the aircraft — more flexible in structure, stricter in its requirements on the borrower
• sale-and-leaseback — selling your own aircraft and leasing it back, when you need the money but still need the aircraft

What the lessor looks at

• the type and age of the aircraft and how liquid it is on the second-hand market
• the residual value at the end of the term — the payment is calculated from it
• the status of the maintenance programmes and the state of the records
• the jurisdiction of registration and the ability to repossess on default
• the financial standing of the lessee and the structure of the security

What to read in the contract

The clauses that matter sit outside the rate: the return conditions and the required condition of the aircraft at the end of the term, limits on annual flight hours and on where you may fly, the insurance requirements and who the beneficiary is, the procedure in the event of damage, the terms of an early buyout.

Return under an operating lease is the most underestimated item: the aircraft has to come back in the agreed condition, and bringing it to that condition sometimes costs as much as several months of payments.

I spent five years working in aircraft leasing. In 2014–2015 I oversaw the return of the technical records for 21 Transaero aircraft that were on lease, and that is where the price of sloppy paperwork shows: a records set is built up over years, and it has to be handed over complete and in one go.

What the calculation looks like

What has to be worked out is the full cost of ownership over the term of the deal: the payments, insurance to the lessor's requirements, maintenance to the agreed scope, the cost of bringing the aircraft to return condition, and the tax consequences.

That result is then compared with buying with your own money — taking into account how much your money earns in your main business. It is often this question that decides the matter.

Frequently asked questions

How large a down payment does an aircraft lease require?

Usually from 20–30%, but the range is wide: it depends on the type and age of the aircraft, the term of the deal and the borrower. For rare and older types, financing is harder to obtain.

Can an aircraft be chartered out while it is on lease?

As a rule, yes — with the lessor's consent and subject to the requirements on the operator and on insurance. This point has to be built into the contract in advance.

What happens if you exceed the hours limit or fly outside the agreed geography?

On hours, the contract usually provides for an extra payment or a recalculation of the residual value at the end of the term — the amount builds up quietly and surfaces when the deal is closed. Geography is stricter: flying outside the agreed area can take the flight outside insurance cover, and that gives the lessor grounds for a claim. Work the limits out from your real flight plan for the year, with room to spare.

What happens if the aircraft is damaged during the lease?

The procedure is written into the contract: notify the lessor, repair at an agreed organisation, and the insurance payout goes to the beneficiary, which is most often the lessor itself. If the aircraft is a total loss, the deal is closed out by the insurance payment, and the lessee pays the difference between that and what is left of the obligations. This scenario is worth talking through before signing, while the wording can still be changed.