aircraft leasing

 

Today, cargo plane leasing is rapidly evolving from a relatively simple agreement in which the aircraft owner leases it to an airline, to a complex set of agreements such as the operation of the Amazon Prime Air fleet.

At first glance, everything seems pretty simple. If you want to add another aircraft to your fleet, you can either buy it or rent it. You do some simple financial calculations, think a little about how long you are likely to be operating the new aircraft and what you will do with it after that time, and then decide whether to buy or rent. If only it were that easy.

It may have been a relatively easy decision a few decades ago to rent a cargo ship, but now it is far from the case. Aircraft financing has become very difficult and leasing has long evolved into many, very different alternatives. With all these complexities and alternatives on offer in a world of nearly 9,000 airlines and 400 lessors, the result is a highly intricate web.

However, if we leave the financial difficulties to the discretion of the experts, and if we look only at the lessors that own cargo aircraft and only the airlines that operate leased cargo aircraft, the confusion will be greatly reduced. But before we get into the analysis between the lessor and the airline, we will start by looking at the three main types of aircraft leases in use today.

 

Leasing without service

This is a classic lease agreement under which the lessor provides the aircraft to the airline (lessee). Just a plane. The airline is then responsible for listing that aircraft on its own operational certificate, providing crew and ground personnel, and insuring, maintaining and refueling the aircraft.

Unattended rentals are usually long – usually at least five years, and sometimes fifteen years, with a fixed monthly fee.

 

Wet leasing – ACMI

ACMI, an abbreviation for Aircraft, Crew, Maintenance, and Insurance, is used to describe a lease that can be viewed as an extended lease. This type of aircraft lease is often referred to as wet lease. The lessor in this case is the airline that provides not only the aircraft, but also the crew, and operates the aircraft itself (according to its own certificate) on behalf of the lessee, which may be another airline or, which is more and more common in the world of air transportation, a freight forwarder or charter broker.

The lessor is also responsible for maintaining and insuring the aircraft, while the lessee is responsible for filling the aircraft with cargo, determining routes and schedules, and operating costs such as ground handling, boarding fees and fuel.

ACMI leases are generally valid for one to three years, with the tenant guaranteeing payment for the minimum number of hours worked per month, plus additional fees if the minimum working hours are exceeded.

 

Advantages and Disadvantages of Wet Leasing

The advantages of wet leasing for the lessee are:

Use of additional aircraft during peak season or in case of new flights.
The choice of a transport model with the required technical characteristics.
The ability to fly to countries to which the lessee cannot carry passengers for political reasons. For example, EgyptAir flies to Israel, so it uses Air Sinai’s wet leasing services.
Obligatory maintenance, repair, aircraft insurance by the lessor. He can also deal with training of personnel, supply of raw materials, etc.
Making payments under a lease agreement allows you to receive benefits on profit.
Young companies that do not have enough funds to purchase aircraft can lease a plane. A lot of documents are not required to register the service. Thanks to it, newly emerging air carriers can strengthen their position in the market and quickly adapt to constantly changing conditions.

The main disadvantages:

  • Ownership of a vehicle during the entire term of the contract. If the lessee fails to pay, the owner has the right to withdraw the aircraft without a court order.
  • Payments cannot be terminated, and the contract is terminated if the vehicle is obsolete.
  • All responsibility for the safety of the aircraft lies with the lessee.

 

This service has advantages for the aircraft owner:

  • The lessor retains ownership of the aircraft until the lessee pays the full value of the aircraft, including the interest rate set by the owner.
  • Possibility of proper distribution of own funds to obtain the greatest profit, since the agreement on lease payments is established before the transfer of the aircraft for use.
  • The lessor is entitled to tax breaks. They apply to taxes on profits and property. In addition, there is a possibility of VAT refund on payments under a lease agreement.


The negative aspects of “wet” aircraft leasing are:

Payment for insurance and aircraft maintenance. Additional costs make the deal less profitable, so lessors often resort to increasing the amount of retention.
Difficulties associated with accounting due to the fact that there are several parties to the transaction.
Difficulties accompanying the import of an expensive aircraft into the country.

 

airplane


Dry leasing – CMI

Growing in popularity, CMI rentals are similar to ACMI rentals without the letter “A”. That is, upon the complete cancellation of a classic no-service lease, the lessee provides the aircraft, and the lessor provides the crew, maintenance and insurance. This type of lease is often referred to as dry lease.

Based on recent CMI agreements, leases are typically five to seven years. And, oddly enough, CMI agreements are often combined with no-service leases – Company A leases the plane out of service to Company B, then Company B hands the plane back to Company A, which then operates it for Company B.

 

Wet leasing

There is also a type of aircraft lease called Damp lease. It is a combination of both dry and wet leases (hence the name).

When an airline asks for wet leasing, the leasing company provides it with an aircraft, pilots, and helps with insurance. But for wet leasing, the agreements are different. For example, an airline may have many available flight attendants as they have just hired many new employees. But they lack the engineering staff to handle the operations. So wet leasing is perfect here – they lend the plane, the pilots who go with it, insurance and maintenance staff, but they don’t need an additional flight attendant, so renting them is cheaper.

 

Prime-Air-in-flight

 

Illustrative examples

Atlas Air Worldwide Holdings

If that sounds complicated, perhaps a few examples will help clarify things. We’ll use Atlas Air Worldwide Holdings (AAWW) in the examples, because it is involved in all three types of leasing, often both as lessor and lessee. AAWW is the parent of several airlines (Atlas Air, Polar Air Cargo, and Southern Air), and also owns a leasing company, Titan Aviation Leasing.

At the dry lease level, AAWW dry leases five of its fifteen 747-400Fs, from four lessors. The lessors own the freighters and dry lease them to AAWW, which then places them on its own AOC and operates them with its own crews. On the flip side of the coin, one of Atlas Air Worldwide Holdings’ subsidiaries, Titan Aircraft Leasing, is a dry lessor in its own right, with an owned portfolio of nine freighters and two passenger aircraft, which it leases to a variety of customers.

At the ACMI level, AAWW operates freighters on the certificates of its subsidiary carriers Atlas Air and Polar Air Cargo for a variety of customers, including three carriers (Astral Aviation, Etihad Airways, Qantas), an express company (DHL), two forwarders (BST/Navitrans and Panalpina), and a charter broker (Chapman Freeborn). In addition to the aircraft, Atlas supplies the crews, and is responsible for maintaining and insuring the aircraft; the customers are responsible for the rest.

At the CMI level, AAWW operates five 777Fs, nine 767-200Fs, two 767-300Fs, and five 737-400Fs for DHL Express. In this case, DHL supplies the aircraft, which AAWW then puts on the certificates of its subsidiary carriers, operates them with its own crews, and is responsible for maintenance and insurance. For its part, DHL is responsible for providing the loads, and paying for fuel and airport/handling fees.

At the combination-of-lease-arrangements level, Atlas Air Worldwide Hodlings recently entered into an agreement with Amazon, under which Atlas’ Titan Aviation dry leasing arm will lease twenty 767-300 freighters to Amazon, which will then hand the freighters back to AAWW’s subsidiary carrier Atlas Air, which in turn will operate them for Amazon on a CMI basis.

 

Air Transport Services Group

Another interesting twist on the whole leasing game has been pioneered by US-based Air Transport Services Group. ATSG is the parent company of two airlines (ABX Air and ATI) as well as leasing company Cargo Aircraft Management. Like Atlas, ATSG operates its own freighters (through its airline subsidiaries) for other carriers on an ACMI basis, operates freighters owned by other companies on a CMI basis, dry leases freighters to other carriers through its CAM subsidiary, and also uses the combination-of-lease-arrangements in its own 20-aircraft deal with Amazon (in fact, ATSG was the first aircraft provider/operator to work with Amazon).

But ATSG has also developed what it calls the “Wet-to-Dry” concept through another subsidiary, Airborne Global Solutions (AGS). Through AGS, an airline can transition through all the stages of the cargo game with minimal risk, starting with an ACMI lease (which, in the past, was often referred to as a “wet” lease) under which one of ATSG’s carriers operates a freighter on an ACMI basis. Then, when the lessee is ready to make the transition, it can transfer to a long-term dry lease through ATSG’s Cargo Aircraft Management unit. Maintenance of the dry-leased aircraft can be handled through Airborne Maintenance & Engineering Service (AMES, a large MRO, and yet another ATSG subsidiary).

 

Why do airlines lease aircraft

In short, we can see four definitive reasons why would an airline lease aircraft:

1. The airline doesn‘t have the money instantaneously. So, they split up the payments for an aircraft and still can operate it fully;

2. A gap in the market has opened up, for example after a rival airline has gone bankrupt. The airline needs an aircraft quickly – they could order a new one from Airbus or Boeing, but the waiting line is a couple of years. Instead, they lease an aircraft and receive it within a few months or even weeks, in the most extreme cases;

3. Unforeseen circumstances like an unusual amount of aircraft being maintained, fleet groundings or strikes can help the airline stay in control of their own operations with short-term leases.

4. Seasonal changes – for the summer they need more aircraft, while for the winter the same aircraft would sit idle. So, the airline uses a short-term lease to cover its seasonal operations.

 

According to the materials: Cargofacts, AOPA, ACC Aviation, Aerotime

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