how aircraft leasing works and why airlines do it we're used to assuming that if an airline paints an aircraft using its livery and operates it it must also own it the topic of aircraft leasing does not get the attention it deserves given its vitality and prevalence to the airline industry the incredible financial burden of obtaining brand new aircraft is so significant that virtually all airlines decide to lease at least some of their aircraft let's dive into the functionality of aircraft leasing if an airline wants to obtain a new plane they can either buy it or
lease it let's imagine that qatar airways is willing to expand its operations and needs a new fleet of 10 boeing 787s to do so if they have enough cash or can obtain bank loans they can purchase the aircraft directly from boeing a list price for one brand new 7878 is around 240 million dollars so assuming qatar airways would get a good discount of 35 from boeing purchasing 10 brand new 787s would cost them 1.56 billion dollars the other option that qatar airways has is to lease those 787s for which the lease rate average sits at
around 1 million dollars a month if qatar airways decides to retain cash and chooses to lease they can reach out to firms that specialize in commercial aircraft leasings such as avalon or assuming that qatar airways will also receive a discount of 35 from g-cass they now only have to pay 78 million dollars per year for all 10 of the 787s if we imagine that the leasing contract will last for around 20 years its total value would be around 2.34 billion dollars in that way gcass can make a profit by leasing their airplanes while qatar airways
manages to reduce its cash expenditures and retain liquidity in its business there's a huge variety with regards to types of leases and deals that airlines can make with the lessers firstly we should distinguish between wet dry and damp leases an example of a dry lease where a commercial airline takes aircraft from the leasing company for a set period of time in most cases the aircraft remains with the leasing company and the airline operates it using its own crew it's the most commonly known type of lease wet leases also known as acme occur more ad hoc
when an airline demands additional aircraft to fill the gaps in their network the name acme acmi stands for aircraft crew maintenance insurance as all are provided by the lesser demand for acme deals was particularly strong once a portion of the global 787 fleet became grounded due to their trend engine issues these are usually short-term and total contract values are much less significant than those of dry leases damp leases particularly popular in the uk are when the letter like air belgium provides the aircraft flight crew and maintenance while the lessee provides the cabin crew other deals
can take place between airlines and aircraft lessers a famous example is a sail and lease back deal those occur subsequently through aircraft purchased by the airline when said carrier sells its planes to a leasing firm and leases them back the most common reason for such transaction is to free up capital and obtain cash agreements as such happen quite regularly historically one such instance saw qatar airways make a sale and lease back deal for seven brand new a350s with gcas in 2017. we also saw cathay pacific and bok aviation make a sale and lease back deal
covering six boeing triple seven 300 er jets just last month financially troubled carriers are more likely to do such deals as cash becomes more valuable for their short-term survival over the coming months we could see a significant amount of such deals taking place their size will only be constrained by the financial stability of the leasing companies with airlines desperately grasping for cash leasing firms with strong books can score some very beneficial contracts under normal circumstances leasing allows airlines to reduce their indebtedness helps with cash retention and greater financial agility paying a small fraction of the
aircraft's value each month is a vital part of many airline strategies it's the only fleet financing solution that allows a dynamic expansion without huge capital expenditures which many airlines have recently benefited from whiz air wouldn't have achieved its impressive 253 growth in passenger numbers over the last eight years if it had at least 100 of its fleet recent dynamic growth of lot polish airlines indigo gold or fuelling was also fueled by aircraft leases these carriers now have over 70 of their planes leased if leasing provides airlines with so many benefits why would any airline even
consider purchasing aircraft on their own well actually owning aircraft makes sense too firstly once the airplane gets grounded either due to a network planning issue or a global pandemic the airline doesn't have to continuously pay for its lease as it owns it outright additionally purchasing aircraft directly from manufacturers usually results in a lower total cost per aircraft obtained in times like today airlines such as lufthansa which owns eighty percent of its fleet can encumber their aircraft that is to obtain loans using their aircraft as collateral this option is so vital given current circumstances but many
carriers globally currently do not have such an option if you like this video please like and subscribe to the simple flying channel and be sure to click the notification bell
