How does aircraft leasing work – Aircraft leasing explained

Some of us might not even have heard of leasing companies before. Some, who have explored the intricacies of aviation, know that airlines sometimes lease aircraft, instead of buying them. In addition, terms like wet lease, dry lease or damp lease agreement fluctuates around aviation news sites.

For example, one of the biggest airlines and most prestigious airlines in the world, Emirates has leased a Boeing 777-300ER from AviaAM Financial Leasing China.

You’ve surely heard of Emirates. But AviaAM Leasing? Owning a Boeing 777? Leasing it to Emirates?

It definitely raises some questions about leasing, leasing companies and why such huge airlines, like Emirates, would need to lease an aircraft.

So, in order to clear things up about Aircraft leasing, let’s dig deeper into the subject.

What is Aircraft Leasing?

To make it simpler, imagine it is like an apartment or house loan. A bank or a construction company owns a big apartment building in an attractive location. You, as a potential homeowner, are looking to buy an apartment in the very same location.

So, you contact the company that owns the apartment complex, strike a deal on the price. Then, you proceed to go to the bank and get a loan agreement of 15, 20 or 25 years. Each month you pay your loan and you can use the apartment however you want (in accordance with your contract, of course). After the 25 years, the apartment is yours – you can sell it, rent it or live in it. The choice is yours.

Similarly to this, aircraft leasing works pretty much the same. An airline is looking to expand its own fleet but doesn’t have the cash to purchase an aircraft out-right. Maybe it is a new company; maybe the airline just got out of bankruptcy protection and is looking to save some money while still expanding their operations.

Subsequently, they contact an aircraft leasing company saying they want to lease an aircraft.

But this is where things get interesting and aviation spices things up.

Wet, Dry or Damp lease

The airline needs to know what type of lease they want – a wet lease, a dry lease or a damp lease. Each of those could be a short-term or a long-term lease.

What’s the difference?

Wet lease

Firstly, let’s begin with the wet lease. When an airline wet leases an aircraft, the leasing company provides literally everything – the aircraft itself, pilots and cabin crew. Furthermore, the leasing company also takes care of maintenance and insurance.

Essentially, you can have 0 aircraft that you own as a company and still run an airline. Usually, when a leasing company provides an ACMI (Aircraft, Crew, Maintenance and Insurance) service, they operate under their own Air operator’s certificate.

For example, an airline is based in a popular summer destination, like Cancun or Ibiza. During the winter, the passenger numbers are low and the airline can handle operations and the traffic by themselves with a small amount of aircraft.

However, as summer months come, the passenger numbers double or triple. The airline doesn’t have enough money to suddenly ramp up operations and buy new aircraft, hire new crew and maintenance people. So, what they do is contact a leasing company and order wet leases. They are short-term, as during the winter months they wouldn’t need so many aircraft.

Long-term agreements would be signed by bigger airlines with more stable passenger numbers on their routes. During the last few months, Jet Airways has collapsed. The airline had numerous lucrative routes to and from India. The most sought after routes are to the Middle East.