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So Now You Have Decided to Lease an Aircraft?

 

Lockheed L1011

After reviewing your aircraft usage, organizational structure & financial status, along with consideration for air charter and purchasing, you have concluded that leasing is your best option.

So what's the next step... well you now need to consider what leasing options are available and which one is right for you, ACMI or dry lease. Review our Aircraft Leasing Definition page to get an in depth assessment of each type. Next we will briefly discus the main options of both ACMI and the various types of dry lease.

 

ACMI:

Aircraft, Crew, Maintenance & Insurance is usually a short term leasing option, from a few months to 2 years. The aircraft remains on the Lessor's AOC throughout the lease term. Ideal option for testing route expansion, seasonal demand, scheduled/non scheduled maintenance (AOG) and start-up airlines.

The Lessor provides the Lessee with the aircraft(s), along with crew, maintenance and insurance on either a short and long-term contract. The Lessee absorbs marketing, direct operating expenses, such as fuel, landing, parking fees and ground handling, as well as bearing the commercial risk of load and yield.

The cost associated with an ACMI lease rate is usually expressed as a hourly block rate and the Lessee has to guarantee the Lessor a minimum number of hours per month. Other costs will include a deposit (usually equal to one month lease rate), aircraft positioning and any livery scheme the Lessee my wish to deck out the aircraft. These costs are open to negotiation.

Example ACMI lease first month costs:

  1. Example aircraft: Airbus A320.
  2. Lease rate, say US$2750 per block hour (chock-to-chock).
  3. 250 hours per month guaranteed.
  4. Minimum monthly lease rate: $2,750 * 250hrs = US$687,500 per month.
  5. Deposit (1 month lease rate) = US$687,500.
  6. Total US$1,375,000 plus positioning costs and livery.

What's included and not included in an ACMI lease?

Lease rate includes:

  1. Provision of Aircraft;
  2. Provision of sufficient flight crews and their associated salaries;
  3. Maintenance support, including provision of ground engineers;
  4. Aviation Third Part Liability Insurance;
  5. Crew scheduling;
  6. Operational flight plans.

Lease rate excludes:

  1. fuel and oil;
  2. aircraft landing, handling, navigation and terminal charges;
  3. passenger and cargo handling;
  4. airport taxes, all passenger related taxes and security taxes;
  5. aircraft parking and ground security;
  6. ramp services including towing, push-back, de-icing, nitrogen and oxygen services;
  7. all dry goods, including but not limited to head rest covers, airsickness bags, blankets and pillows;
  8. ATC fees and all international route charges;
  9. catering for passengers and crew;
  10. cabin cleaning and water services;
  11. aircraft interior deep cleaning and exterior cleaning;
  12. airport security passes and permits, if required;
  13. over-flight permits;
  14. custom taxes, immigration and inspection fees, import and export duty's;
  15. landing and traffic permit and slots;
  16. ID tickets (S1) on Lessee's route for Lessor's crew, or crew change (proceedings) all travel cost that will be charged to Lessee;
  17. hangar space when and where required by the Lessor for proper maintenance of the aircraft;
  18. crew and mechanics accommodation (min 3 star, single rooms), with breakfast & laundry;
  19. transportation of Lessor's crew and mechanics between hotel and airport;
  20. office space including telephone, fax, email;
  21. spare parts facilities (storage) including air conditioning;
  22. one van for transportation of mechanics and parts;
  23. insurance - passengers, baggage, mail, cargo and war risk insurance;
  24. any additional cost reference to insurance coverage will be on Lessee's account;
  25. any and all other reasonable direct operating costs, incurred in the performance of the flights whether or not listed above.

Dry Lease:

The basic aircraft without insurances, crew, maintenance etc. Usually aircraft offered on dry lease are owned by leasing companies and banks. A dry lease requires the lessee to place the aircraft on it's own AOC and provide aircraft registration, crew, maintenance and insurance. A typical dry lease starts from two years onwards and bears certain conditions as far as depreciation, maintenance, insurances etc. are concerned. There are two types of dry lease... Operational & Financial lease.

Operational Lease:

Boeing 737

Medium to long-term option, generally a lease term that is short compared to the economic life of the aircraft being leased. An operating lease is commonly used to acquire aircraft for a term of 2-7 years. With an operating lease the aircraft doesn't appear on the Lessee's balance sheet.

Financial Lease:

Also known as a capital lease, is defined when one of the following conditions are met:

  1. at the end of the lease term the Lessee has the option to purchase the aircraft at an agreed price.
  2. the lease payments are more than 90% of the market value of the aircraft.
  3. the term of the lease is over 75% of the aircraft's usable life.

With finance lease the aircraft appears on the Lessee's balance sheet, as it is viewed as a purchase.

Chattel Loan: This is a form of outright purchase where a loan is provided for the purchase so ownership of the aircraft is transferred to the purchasing company and the financier simply takes a mortgage over it. This type of arrangement is commonly used when seeking ownership of the unit at the end of the finance term as a residual or balloon payment is not required. Under a chattel loan the aircraft appears on the company balance sheet as titled to the aircraft has been transferred.