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A380MSN004
Topic Author
Posts: 731
Joined: Sat Jun 03, 2017 9:07 am

Financial VS Operating Lease

Thu Apr 16, 2020 10:10 pm

Hi everyone,

I'd like to understand what are the benefits for an airline to lease an aircraft via an Operating lease instead of a Financial lease.

Major Operating lessors are guys like GECAS, Avolon, CDB, NAC Aviation while Financial lessors are usually banks.

Regarding the airline what is the benefit to lease an aircraft or couple of aircrafts via an Operating lease?

Is it cheaper ?
Does the aircraft is available quicker?
Does the lessor offer extra services such as pilots training, Tech trainings?
In case of a used aircraft, does the lessor can remarket the aircraft as the airlines wish?
Lease duration can be more flexible in case of an operating lease?
Lessor can be more flexible in terms of garanties?

Many thanks for your feedbacks.
 
VS11
Posts: 1653
Joined: Mon Jul 02, 2001 6:34 am

Re: Financial VS Operating Lease

Thu Apr 16, 2020 10:20 pm

It works pretty much like leasing a car vs. buying a car with an auto loan. Or renting an apt vs. buying an apt with a mortgage. The major difference is that when you pay off the loan you own the asset (car, plane, apt) while with the lease you just return the asset and that's it. Generally, over the longer term, financial lease is cheaper than operating lease.
 
QF93
Posts: 22
Joined: Sat Oct 22, 2016 10:44 am

Re: Financial VS Operating Lease

Fri Apr 17, 2020 1:33 am

It’s also about who takes the risk on the residual value of the aircraft at the end of the lease - the airline (for a finance lease) vs the lessor (operating lease), although sometimes that distinction can get a bit blurred.
 
NYKiwi
Posts: 87
Joined: Tue Jun 12, 2018 1:41 am

Re: Financial VS Operating Lease

Fri Apr 17, 2020 1:54 am

Also op lease is not a balance sheet item so.no asset and no debt the op lease expense hits expense line in I/E, so depending on airline credit strength and cash they opt to do on lease than increase debt
 
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hongkongflyer
Posts: 798
Joined: Tue Oct 28, 2014 8:23 am

Re: Financial VS Operating Lease

Fri Apr 17, 2020 2:55 am

NYKiwi wrote:
Also op lease is not a balance sheet item so.no asset and no debt the op lease expense hits expense line in I/E, so depending on airline credit strength and cash they opt to do on lease than increase debt


the accounting standard has changed and no more difference between op lease and finance lease and those off balanced sheet benefits
 
DarQuiet
Posts: 24
Joined: Tue Aug 15, 2017 12:31 am

Re: Financial VS Operating Lease

Fri Apr 17, 2020 8:08 am

A380MSN004 wrote:
Hi everyone,

I'd like to understand what are the benefits for an airline to lease an aircraft via an Operating lease instead of a Financial lease.

Major Operating lessors are guys like GECAS, Avolon, CDB, NAC Aviation while Financial lessors are usually banks.

Regarding the airline what is the benefit to lease an aircraft or couple of aircrafts via an Operating lease?

Is it cheaper ?
Does the aircraft is available quicker?
Does the lessor offer extra services such as pilots training, Tech trainings?
In case of a used aircraft, does the lessor can remarket the aircraft as the airlines wish?
Lease duration can be more flexible in case of an operating lease?
Lessor can be more flexible in terms of garanties?

Many thanks for your feedbacks.



Hope this link can be of help for you https://simpleflying.com/how-aircraft-leasing-works/




NYKiwi wrote:
Also op lease is not a balance sheet item so.no asset and no debt the op lease expense hits expense line in I/E, so depending on airline credit strength and cash they opt to do on lease than increase debt


You might want to check the latest with IFRS 16 based on your statement.
 
A380MSN004
Topic Author
Posts: 731
Joined: Sat Jun 03, 2017 9:07 am

Re: Financial VS Operating Lease

Fri Apr 17, 2020 10:38 pm

Thanks for you feedback guys.
In case of Operating lease, does the lessor provides extra services to the lessee such as training pilots, tech, cabin crew?
Maintenance is included?

many thanks for your feedbacks.
 
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MoKa777
Posts: 1067
Joined: Fri Oct 21, 2016 11:47 am

Re: Financial VS Operating Lease

Sun Apr 26, 2020 4:05 am

A380MSN004 wrote:
Thanks for you feedback guys.
In case of Operating lease, does the lessor provides extra services to the lessee such as training pilots, tech, cabin crew?
Maintenance is included?

many thanks for your feedbacks.


That would depend on the type of lease.

A dry lease does not include crew or maintenance. The airline is responsible for this.

A wet lease would include crew and maintenance.

I'm not 100% sure what would be included in a damp lease agreement.
Never be proud. Always be grateful.
 
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MoKa777
Posts: 1067
Joined: Fri Oct 21, 2016 11:47 am

Re: Financial VS Operating Lease

Sun Apr 26, 2020 4:09 am

Not to derail this thread but I have a question regarding the length of leases.

How has this evolved over time? When did 10 year leases become popular? 12 year leases?

Is the length of lease options available for a particular aircraft type tied in any way to the heavy maintenance schedule for that type? For example, would a 10 year lease option be an attractive proposition for an aircraft type that has a heavy maintenance check (D Check) at 12 years?

Have lease lengths evolved with evolving aircraft maintenance programmes?
Never be proud. Always be grateful.

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