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Aircraft Leasing: Is it Right for Your Company


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In the rapidly-changing global business environment, time is money. No one understands this quite like the business traveler. However, often times their hands are tied as they are left to the mercy of commercial airlines, airport delays and many more travel hiccups that end up proving costly to their business’s bottom line.

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Aircraft Leasing: Is it Right for Your Company

  2. 2. When looking to acquire a business aircraft, there are a number of financing options available. There are also a number of considerations that go into a final financing decision, but the most prominent are the operational cash requirements vs. financial tie-ups of a large purchase like an aircraft. Let’s take a look at the different types of financing available for a business aircraft and the advantages that may make it easier on a company’s budget.
  4. 4. OPERATING LEASE The aircraft lessor and the lessee agree to the use of an aircraft asset for a period of time in exchange for a rental payment and a modest security deposit. The lease will typically be five years or longer. The lessee is responsible for the lease rate itself, insurance, operational and maintenance related payments for the term of the lease. The lessee will then return the aircraft to the lessor at the end of the leasing period. If the return conditions are met, the security deposit is returned. 1 2 3
  5. 5. OPERATING LEASE Advantages 1. ALLOCATION OF CAPITAL Acquiring a long-range private aircraft for cash, or using traditional loan financing for 70% of the aircraft cost, represents a significant allocation of capital into a depreciating asset. With an operating lease, up to 100% of the cost of the aircraft can be funded by the lessor. Lessees typically only have to fund the security deposit and certain other transaction costs at closing. The operating lease allows corporations the opportunity to gain access to a long-range aircraft without having to tie up significant amounts of capital in a non-core asset.
  6. 6. OPERATING LEASE Advantages 2. NO RESIDUAL VALUE RISK Operating leases shift the risk of aircraft ownership to the lessor and away from the lessee. At the end of the operating lease, the lessee simply returns the aircraft. The value of the aircraft at the end of the lease is the lessor’s risk, not the lessee's. The introduction of new aircraft technology, a slump in global equity markets, or an excess supply of pre-owned aircraft can all affect the future value of an aircraft. But with the operating lease product the customer has no exposure to any of these events.
  7. 7. OPERATING LEASE Advantages 3. CERTAINTY OF COST In both the loan and the operating lease scenario, the lessee will have the same direct operating costs. But at the end of the loan term, when it comes time to sell the aircraft, cost of ownership can jump if the lessee cannot sell in a timely manner or if the net proceeds fall short of expectations. An operating lease leaves the residual value risk with lessor and provides the customer with a certainty of cost associated with the term of use for an aircraft.
  8. 8. OPERATING LEASE Advantages 4. ACCOUNTING AND TAX BENEFITS Operating leases support off balance sheet accounting treatment. A business can access a private aircraft without burdening the balance sheet with a non-core asset. For jurisdictions that tax the purchase of an aircraft, the operating lease may allow users to minimize their tax liabilities to just tax on monthly lease payments. Consult your tax and accounting professional for guidance.
  10. 10. CAPITAL LEASE A capital lease (or finance lease) is a type of lease where the lessee will select an aircraft that the lessor will then purchase. The lessee will have use of the aircraft during the lease and will pay a series of rentals or installments. The lessor recovers a large part or all of the cost of the aircraft plus earns interest from the rentals. At the end of the leasing period, the lessee has the option to acquire ownership of the aircraft. The finance company is the legal owner of the asset during the duration of the lease. However the lessee has control over the asset providing them the benefits and risks of economic ownership. 1 2 3
  11. 11. CAPITAL LEASE Advantages 1. BENEFITS OF OWNERSHIP Finance leases are typically accounted for as being 'owned' for tax and accounting purposes by the lessee. Benefits such as depreciation and other inducements to buy a capital good are typically for the lessee’s account. Since the title will pass to lessee upon final payment, the benefits and risks of the residual value of the aircraft will also accrue to the lessee.
  12. 12. CAPITAL LEASE Advantages 2. ALLOCATION OF CAPITAL Up to 100% of the cost of the aircraft can be funded by the lessor under the finance lease structure. Lessees typically only have to fund the security deposit, an initial down payment and certain other transaction costs at closing.
  14. 14. MEZZANINE LOAN Borrowers may be able to source attractively priced senior debt or finance lease capital to fund the senior portion of an aircraft. In certain circumstances, a separate financing organization can provide the borrower with additional "top up" loan capital to finance 80%-100% of the acquisition or refinancing value of an aircraft. The term of the junior or mezzanine debt will likely be between a five and 10-year term and may feature a lump sum or 'balloon' amount at maturity. 1 2 3
  15. 15. MEZZANINE LOAN Advantages 1. ALLOCATION OF CAPITAL Combined with a traditional senior loan, this allows borrowers to obtain up to 100% financing of the cost of the aircraft from the company working together with a senior lender. Clients typically only have to fund an equity deposit, the security deposit and certain other transaction costs at closing.
  16. 16. Offering a full range of aircraft financing solutions, products and services, Global Jet Capital provides every client with flexibility, comfort and convenience with their aircraft finance. Our management team has the industry expertise and experience needed to structure integrated solutions for all your aircraft leasing and lending needs.