There are many ways to lease aircraft. The type of lease you need depends upon the needs and capabilities of your company. Here are a few examples along with some of the advantages and disadvantages of each.
Under a standard operating lease, the lessor will be owner of the airplane. However, the rent payments likely will be reduced to offset the tax advantages retained by the lessor. The longer the lease commitment, the more likely that payments will be low because the lessor bears less risk regarding the residual value of the asset. With an operating lease:
Capital finance lease
A finance lease gives you some of the benefits of ownership while at the same time providing a way to finance all of the costs of acquiring the asset. Under a capital finance lease:
The off-balance sheet loan
Another alternative growing in popularity is the "off-balance sheet loan." The transaction is structured to capture some of the benefits of both the operating lease and the capital lease. The loan is structured as a lease and the lender is designated as the lessor, but the lessee is treated as the owner for some purposes. The lease usually has a fixed buyout at the end of the lease, usually at a value that is less than the true residual value of the aircraft. The buyout is optional for the lessee. Under an off-balance sheet loan:
There are specific features that the transaction must have in order to have the advantages described above. The transaction must be carefully structured. However, even with careful structuring, some accountants may be uncomfortable with use of this structure as a way of keeping debt off the balance sheet.
Choosing the best lease
Selecting the best type of aircraft lease for your company requires consideration of the company's cash flow, working capital, balance sheet, accounting, and tax needs. Experienced professionals can help you weigh the relative advantages and disadvantages of the different types of aircraft leases and can structure the transaction to satisfy relevant tax and accounting rules.
Updated: January 1, 2013
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
© 2013 Wilmington Trust Corporation.