Operating Lease / Question
 

Hi guys, I've recently find out there's two types of lease deals for airlines. I'd like to understand the benefits for an airline to lease via an "Operating Lease" compared to a "Financial Lease".
I assume the Financial Lease is just a "bank deal" with the possibility at the end of the lease period to apply or not an option for owning the aircraft which is not the case under an "operating lease". But under an "Operating lease" does the lessor is providing extra services such as maintenance, service bulletin upgrades, trainings etc?

Many thanks for your help.

It all depends on the contract...

"Wet Lease" is sometimes called ACMI, for Aircraft, Crew, Maintenance, Insurance - the 4 items provided in the lease. There are also CMI leases where an airplane owner contracts a company to operate the airplane, e.g., Atlas Air operating Boeing's Dreamlifter.

Thanks for your feedback. My questions is more in case of "Dry Lease" with a lessor such as GECAS, Nordic Aviation Capital etc. Do those guys provides extra services or they just lease the aircraft and that's it?

Today's lock-down home-schooling lessons, explain and define

Wet lease -
Dry lease -
Damp lease -
ACMI lease

Break at 10.00

followed by
10.30 Test Match strategy
11.00 App design for finding lost Lego
11,30 The life and times of Hannibal Lectar

12.00 Lunch
Chicken nuggets and chips

I think there is some confusion over the OP's question which relates to financial matters rather than airline specific terms.

In a finance lease, ownership of the property is transferred to the lessee at the end of the lease term. For an operating lease, the ownership of the property is retained during and after the lease term by the lessor

Shall I amend today's home schooling lesson, or add that as another curriculum?

The simples way to look at it is by comparing to car purchasing.

Personal contract hire = operating lease and it may come with added features such as maintenance contractors, spare parts etc depends on which leasing arrangement you choose here.

Hire purchase = finance lease. Debt is secured against the asset and once you've paid it off, its yours.

The "IT DEPENDS" is the real answer here......

Lease co can offer lots of things subject to it being in the contract and the customer paying for it. But also they may insist on it because for example the airline does not have airline accredited maintenance facilities that meet the standards required. Think of it as the £200,000 New Merc been serviced by Bob the mechanic in the back street.

This would also apply in terms of an ACMI where the recruiting and training policies are carried out by Brenda whose previous customer experience was a till trainer at Poundland.

This is why no single aircraft lease deal is the same, some airlines pay a significant premium because they have a crap credit rating, some airlines will not be let have an aircraft only lease because nobody trusts their maintenance and crewing or the airline operates in a part of the world where pot shots get taken or parts may go missing.

Whether it is a Financial Lease or Operating Lease will depend on credit rating / capability of airline but also whether fairly specific financial criteria are met. This is why Accountants / Lawyers for Lease co's are very well paid as paperwork gets drawn up in a specific way depending on airline to transfer risk or not as the case may be.

There is no "one size fits all" and even when something appears to be a Finance lease, the reality is it may not be and vice versa.

My understanding is that a Finance Lease is on-balance sheet and an Operating Lease is off-balance sheet.

Used to be the case but not anymore under IFRS 16.

IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

https://www.ifrs.org/issued-standard...frs-16-leases/

'Twas much simpler before I retired!