Can You Lease a Plane? A Financial Perspective

Leasing an aircraft provides an alternative to outright ownership, enabling individuals, businesses, and airlines to access aviation capabilities without the substantial capital investment typically required for purchasing. This approach allows for the use of an aircraft for a specified period in exchange for regular payments. This financial arrangement has become a common practice in the aviation industry.

Why Lease a Plane

Entities often choose to lease aircraft to preserve capital, avoiding the large upfront costs associated with purchasing. Leasing also provides significant flexibility in fleet management, enabling users to adapt quickly to changing operational demands or market conditions without the long-term commitment of ownership. Short-term leases can support temporary capacity increases or allow for testing new routes.

Leasing offers advantages in managing the risks associated with aircraft ownership, such as depreciation and resale value fluctuations. Additionally, leasing can provide access to newer aircraft models with improved fuel efficiency. Lease payments may also offer potential tax benefits for businesses, as they are often deductible as operating expenses.

Types of Aircraft and Lease Structures

A wide range of aircraft types are commonly leased, from smaller private jets and propeller planes for individual or business travel to larger commercial airliners for passenger and cargo operations.

Aircraft leases are primarily categorized as operating leases or finance leases. An operating lease, akin to a traditional rental, means the lessor retains most of the risks and rewards of ownership. Under this arrangement, the lessee pays for the right to use the aircraft for a defined period, and the aircraft is typically returned to the lessor at the end of the lease term. For financial reporting, current accounting standards require lessees to recognize a “right-of-use” (ROU) asset and a corresponding lease liability on their balance sheet for most operating leases.

In contrast, a finance lease, often referred to as a capital lease, functions more like a financed purchase where the lessee assumes most of the risks and rewards of ownership. This type of lease typically covers a substantial portion of the aircraft’s useful life or includes a purchase option at the end of the term. For financial reporting, a finance lease is treated much like an owned asset, with both the aircraft (as an ROU asset) and a corresponding lease liability recognized on the balance sheet. Expense recognition for finance leases usually involves both depreciation of the ROU asset and interest expense on the lease liability.

Key Elements of a Plane Lease Agreement

A plane lease agreement is a detailed contract outlining the terms and conditions governing the use of the aircraft. Key elements include the lease term, specifying the duration of the agreement, which can range from a few months for short-term needs to over a decade for new commercial aircraft. This section also details the lease payments, including the schedule (e.g., monthly, quarterly) and any potential escalations over the term.

Maintenance responsibilities are a significant clause, defining who is accountable for routine upkeep, scheduled inspections, and major overhauls. The lease specifies whether the lessee or lessor is responsible, or if costs are shared through mechanisms like “power-by-the-hour” programs or maintenance reserves. Insurance requirements dictate the types and levels of coverage needed, such as hull insurance for physical damage and liability insurance for third-party claims, and specifying which party is responsible for obtaining and maintaining these policies.

The agreement also outlines the return conditions, detailing the state in which the aircraft must be upon its return to the lessor, including its physical condition and maintenance records. Usage restrictions may be included, limiting how or where the aircraft can be operated. Default clauses specify what constitutes a breach of contract and the remedies available. Early termination options define the conditions and costs associated with ending the lease prematurely.

The Plane Leasing Process

The process of leasing a plane typically begins with an initial inquiry and a thorough needs assessment. This involves identifying the specific type of aircraft required, its intended usage, and the budget available for lease payments.

Once needs are defined, the next step involves finding a suitable lessor. A formal application and due diligence process commences, involving financial and operational vetting of the potential lessee to assess risk and ensure compliance.

After due diligence, the negotiation of terms begins, where both parties discuss and agree upon the specific elements of the lease agreement. The agreement is formalized by signing the lease contract. The final stage involves aircraft delivery and acceptance, where the lessee takes possession of the aircraft after ensuring it meets all agreed-upon conditions and is airworthy.