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Sell And Lease It Back, Benefits And Costs?

Mon Oct 13, 2003 4:56 pm

Reading a outdated Airliner World, Sep 03, it has a small column that says
easyjet sold 7 of its 737NG (2 are currently operating and 5 are going to be
delivered) and leased them back for a 7 year term.

The benefits that I understand may include extra cash inflow due to the sale
of aircraft and reducing the depreciation costs since those depreication no longer included in easyjet's accounting book.

What are the others benefits other than these two? and what are the possible costs (lease costs...?) .

2nd question is, who will bear the maintainence costs of these leased aircraft?
who is going to do the D-checks when aircraft get older? usually will a dry lease or wet lease includes maintainence costs?

[Edited 2003-10-13 10:02:06]
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RE: Sell And Lease It Back, Benefits And Costs?

Mon Oct 13, 2003 7:56 pm

As with any sale and leaseback of a business asset the primary benefit is an immediate injection of capital, and as you say the future depreciation costs do not need to be absorbed as a cost centre within the business. Another benefit is that the aircraft are now considered off balance sheet, among many benefits this can have the appearance of artificially inflating the earnings ratio for the firm, and for a public quoted company like easyjet this is very important.

The planes will most likely still be maintained and crewed by easyjet staff, with the cost being absorbed by easyjet.

Costs for leasing an airliner are generally between 0.8% - 1.5% of the airplanes value per month, this figure will vary depending on the length of the lease and hundreds of other factors that I won't even pretend to understand, although the old supply/demand ratio still rears it's ugly head - after 9/11 the market for aircraft collapsed and leasing costs fell through the floor, in better times the leasing costs rise again.

If you do a search there are quite a few threads in the archives on leasing and other related matters, and no doubt there will be far more knowledgeable people than me who will post and can give you better answers.

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RE: Sell And Lease It Back, Benefits And Costs?

Tue Jun 14, 2005 7:36 pm

Blue Dart did the same with ICICI Bank prior to its sellout to DHL.
How does the Bank Benefit.
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RE: Sell And Lease It Back, Benefits And Costs?

Tue Jun 14, 2005 9:23 pm

The Easyjet deal is somewhat unique as the carrier managed to make a handsome profit of the sale and lease back.
Easyjet was able to secure a significant discount when it placed orders for the aircraft in question. Following delivery, Easyjet turned around and sold the aircraft at market value and pocketed the profit.
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RE: Sell And Lease It Back, Benefits And Costs?

Wed Jun 15, 2005 12:39 am

Depending on the specific tax situations of the lessor and the lessee, there may be substantial beneifts to leasing rather than owning an aircraft.

Structured leasing transactions that provide double dip opportunities for depreciation deduction are wide spread in the trade. In addition if you've got multinational parties involved you can come up with all sorts of funky financial and tax structures. Sometimes you can structure the deal as a financial lease and a tax ownership. Sometimes you can structure it as a tax ownership and a financial lease. Sometimes you can end up with both parties actually owning the assets and both of them taking tax deductions (in their respective countries) for the same asset.

With off balance sheet financial structures you can end up with all the parties being the lessors and taking current period lease deductions and a special purpose entity (a la Enron) being the owner.

The possibilities are nearly limitless.
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