Wet leasing in aviation

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

What is wet leasing in aviation? What is it for? We will answer these and other questions in the article. Aviation leasing refers to the version of leasing that is used to purchase and operate steel birds and their associated equipment and infrastructure. This discipline combines the system of project roy alties and marine leases.

Operating lease

It is known that "wet" leasing is an integral part of the operating one. Leasing companies, airlines and manufacturers use several different systems for the supply of aircraft for rent. Two of them are basic: financial leasing and operational leasing.

Commercial aircraft are often leased through Commercial aircraft sales and leasing (CASL), the two largest being GE Capital Aviation Services (GECAS) and International Lease Finance Corporation (ILFC).

Operating leases are usually short-term. It lasts less than ten years, which makes it attractive when the liner is needed to launch a project (company) or a trial expansion.official carrier.

Short operating leases protect airliners from wear and tear. This point in most countries is the most important due to the frequently modified laws regarding the environment and noise. And what about the states where airlines are less creditworthy (for example, the countries of the former USSR)? Here, operating leasing is the only way to purchase an aircraft for an airline.

In addition, it gives the company flexibility: it becomes able to manage the composition and size of the fleet, reduce and expand it in accordance with demand.

Depreciation

Under operating leasing, aviation equipment is not depreciated in full during the lease. At the end of its term, it can be rented out again or returned to the owner. On the other hand, the residual value of the aircraft at the end of the lease is important to the owner. The owner may request that the returned equipment undergo maintenance (for example, C-check) in order to hasten the transfer to the next operator. Just like in other leasing areas, a security (guarantee) deposit is often required in air leasing.

How does "wet" leasing work in Russia? In an operating lease, the delivery period for aircraft is no more than seven, sometimes ten years. The customer must pay leasing payments monthly, their amount depends on the term of the contract.

Special shape

So, what is "wet" leasing? This is a special type of operation, when the aircraft is leased together withcrew. That is, when an aircraft, its crew, insurance (ACMI) and maintenance are entrusted by one airline (lessor) to another or another type of business acting as an intermediary of air travel (lessee), paying administration by the hour.

The lessee supplies fuel, payments also include taxes, airport charges, any other duties, and so on. His flight number applies. "Wet" leasing, as usual, lasts from 1 to 24 months. A shorter lease is treated as a short-term charter flight on behalf of the client.

Practice

"Wet" leasing (wet leasing) is usually used during peak traffic seasons, either when new flights are opened, or during massive annual inspections of the technical situation. Airliners obtained through this type of lease can fly in countries where lessees are prohibited from operating.

This discipline can also be a form of charter whereby the lessor provides basic work services, including ACMI, and the lessee balances the assistance received with flight numbers. In all other forms of charter, the lessor also issues flight numbers. Various wet lease options can also be code-shared with seat reservations.

Political reasons

Wet leasing is a great tool. It may be used for political reasons. For example, EgyptAir, an Egyptian government company, cannot carry passengersto Israel under his own name because of the policy of his state. As a result, Air Sinai manages the flights of this country from Cairo to Tel Aviv. To avoid this political issue, it is it that provides the wet lease to EgyptAir.

In the UK, this discipline is called the operation of an aircraft under the air operator certificate (AOC) of the lessor.

Quality

What else is good about "wet" aircraft leasing? It consists of mandatory maintenance of equipment, its repair, insurance and other operations for which the lessor is responsible. At the request of the tenant, in addition to these services, the owner can train qualified personnel, engage in marketing, supply raw materials, and so on.

The subject of this type of leasing is most often complex specific devices. Wet leasing in most cases is used either by their manufacturers or wholesalers. Banks and financial institutions rarely resort to this type of transactions, as they do not have the necessary technical base at their disposal.

In practice, there are many forms of leasing agreements, but they cannot be considered as separate types of lease transactions.

Forms of rent

"Wet" leasing involves many different nuances. In international practice, the following forms of lease transactions have become the most common:

• In accordance with the leasing to the "Supplier", the seller of the equipment alsoturns into a lessee, as in a return transaction. But the leased property is not used by him, but by another tenant, whom he must find and hand over to him the object of the contract. Sublease is a mandatory condition of such contracts.
• Leasing "Standard" provides for the sale of the object of the transaction to a financing organization, which, through its leasing companies, rents it out to consumers.
• In the renewable form, the agreement provides for the periodic replacement of equipment at the request of the tenant with newer models.
• General leasing is the right of the tenant to increase the list of equipment received without concluding new contracts.
• Shareholder (group) leasing - leasing of large objects (rigs, ships, drilling platforms, aircraft). In such transactions, several enterprises act as the owner of the equipment.
• Contract leasing is a special form of leasing, in which the tenant is provided with complete fleets of cars, tractors, road construction and agricultural equipment.
• When a lessor receives a long-term loan from one or more lenders for up to 80% of the leased assets, a leveraged lease occurs. Here, the creditors are large investment and commercial banks that own impressive resources attracted for a long time. Leasing transactions are financed by banks through a loan or purchase of liabilities.

These are just the most popular forms of leasing contracts. In practice, a combination of different forms of agreements is possible, which increasestheir number.

Commercial aircraft

And yet, why is air leasing necessary? It is used because of the high cost of airliners. For example, the Boeing 737 Next Generation in 2008 cost about $58.5-69.5 million. It is used by Ryanair and Southwest Airlines. In general, few airlines can afford to pay for their fleet in cash, as they have low profits.

Commercial steel birds are bought by airlines through more sophisticated financing and leasing techniques (leveraged and borrowed). The most popular schemes for allocating commercial aircraft are financial and operating leasing, secured loans. An example of a wet lease agreement can be obtained from any relevant firm. There are other payment options for aircraft:

• bank loan or financial lease;
• real money;
• operator lease and sale or finance lease;
• manufacturer support;
• tax leasing;
• EETCs (Equipment Certificate of Trust).

These schemes primarily concern tax and accounting. They include interest, depreciation of tax deductions and operating costs, which can reduce the tax liability for the financier, operator and lessor.

Private Airliners

Private jet leasing is identical to a car loan or mortgage. Basic deal for a corporate or small private jetcan be done like this:

• borrower provides basic data about the expected aircraft and about himself to the lender;
• creditor finds out the price of the plane;
• lender searches property by aircraft registration number to find ownership issues;
• the lender prepares materials for the transaction: a security agreement, a bill of exchange, a guarantee from a third party (if the borrower turned out to be less creditworthy).

When concluding such a transaction, loan documents are issued, ownership and funds are transferred.