The alternative to leasing isn't very often to hand out own cash. Most often the alternative is borrowing the money in a bank.
Now, many airlines have a rather poor credit rating - an indicator of the risk of bankruptsy. The lower the credit rating, the higher interests the airline must pay for the loans.
Also in case of a bankruptsy the assets are in most cases "frozen" while the bankruptsy court is ruling. It is very inconvenient to have planes parked on the ground for months, maybe years, because the court cannot sell them until the accounts have been settled. It adds to the risk involved, since the planes lose value while parked, and that risk is added on top of an already high interest rate for loans.
A leasing company, on the other hand, can take back their planes the same day as bankruptsy is being declared, and lease them to another airline company.
|Quoting readytotaxi (Thread starter):|
A 14yr old asked me a question I could not answer.
Why do big airlines,like BA,lease a new aircraft and not buy it? If the leasing company can buy it and then lease it to them and make a profit why does the airline not buy it and make a profit? His words.
Can I get a good 14yr old answer pls?
Tell what I wrote above to your 14 years old friend, and he will immediately understand that sometimes it is cheaper to lease than to buy, even if the leasing company makes a profit on the deal.
And the flexibility issue, mentioned by other posters, is of course also very valid. But it comes with a grain of salt. When you lease planes on a rather short term contract, then the leasing rate goes north, while you get a sweeter deal with the leasing company when you sign a contract for many years.