One thing is for sure, planes are expensive, so how airlines afford to own such big fleets? Some companies are buying the plane but usually, companies are leasing the aircraft from leasers all over the World. This happens for two main reasons: to operate aircraft without the financial burden of buying them and to provide a temporary increase in capacity. There are two types of leasing in this industry: wet-leasing, which is normally used for short-term leasing, and dry-leasing which is more normal for longer-term leases. As of 2017, 40% of jet airliners are leased. Usually, airplanes are paid back at a lease-rate factor of about 7%.
A wet lease is a leasing arrangement whereby one airline (the lessor) provides an aircraft, complete crew, maintenance, and insurance (ACMI) to another airline or other type of business acting as a broker of air travel (the lessee), which pays by hours operated. The lessee provides fuel and covers airport fees, and any other duties, taxes, etc. The flight uses the flight number of the lessee. A wet lease generally lasts 1–24 months. A wet lease is typically utilized during peak traffic seasons or annual heavy maintenance checks, or to initiate new routes.
A dry lease is a leasing arrangement whereby an aircraft financing entity (lessor), such as GECAS, AerCap, or Air Lease Corporation, provides an aircraft without crew, ground staff, etc. Dry lease is typically used by leasing companies and banks, requiring the lessee to put the aircraft on its own air operator’s certificate (AOC) and provide aircraft registration.
Aircraft lessors are often banks, hedge funds, or financial institutions financing an industry that worths around $140 billion. Lessors have a preference for narrowbodies over widebodies due to more remarketing opportunities and the substantial reconfiguration time and cost a larger aircraft requires. In March 2021, AerCap, the biggest leaser in the World, announced they had reached a deal with GE to acquire GECAS.
Airlines can still own aircraft and prefer a split situation between bought and leased aircraft. If a company wants to buy an aircraft today, it might not be delivered until the end of the decade so the only solution for startup airlines or those that wish o grow quickly resort to leasing as a faster way to get airplanes. a typical leasing agreement would usually involve a seven to a 10-year contract. The airline would make an initial down payment roughly equivalent to 3 to 6 months, and then pay monthly installments calculated as a percentage of the value of the aircraft, as well as the airline’s credit rating. An airline with good credit leasing a Boeing 787 would pay about a million dollars a month.
For example, Ryanair, a consistently profitable airline, as of mid-2017 it had only 33 aircraft on lease, out of a 383 airplane fleet. Airlines that choose to go the purchase way must first consider the waiting times prior to delivery, which can often be three to five years. A significant down payment is also expected, usually 12 to 24 months prior to delivery.
To finance these purchases there are also special financial instruments such as Equipment Trust Certificates (ETC) and Enhanced Equipment Trust Certificates (EETC). These are corporate debt securities, typically issued by airlines. EETCs are secured on the aircraft operated by the airlines and are structured through special-purpose companies (SPVs) created specifically to own the aircraft and “enhanced” by elements such as debt tranching, availability of liquidity facilities, and over-collateralization. EETCs are often rated which improves pricing and liquidity. The principal considerations for the rating agencies include asset quality, business risk, diversity (both geographic and revenue), and regimes supportive of creditor rights.
Big companies like Airbus and Boeing have special programs for startup companies such as StartupBoeing. These plans offer market opportunity identification to implementation and answer to questions like „Is my existing business plan viable?” or „How can I strengthen my speech to investors?”. You can also learn about World Air Cargo Forecast, Freedoms of the air, Business Planning, Airplane Selection (new or out of production), Support, and Financing.
As you noticed in this article, there are many ways for a company to buy new airplanes but is up to the needs of each company to choose if the entire fleet will be owned or leased.