"Wet" leasing in aviation

What is "wet" leasing in aviation? What is it for? These and other questions will be answered in the article. Aviation leasing is called a leasing version, which is used to purchase and operate steel birds, as well as the associated equipment and infrastructure. This discipline combines the system of project allocations and sea rent.

Operating lease

It is known that "wet" leasing is an integral part of the operating lease. Leasing companies, airlines and manufacturers use several different aircraft delivery systems for rent. The basic ones are two: financial leasing and operational.

Commercial aircraft are often leased through Commercial Aircraft Sales and Leasing (CASL), the two most powerful of which are GE Capital Aviation Services (GECAS) and International Lease Finance Corporation (ILFC).

Operating leases are generally short-term. It lasts less than ten years, which makes it attractive when a liner is needed to launch a project (firm) or a trial extension of an official transporter.

Thanks to the short term of operating lease, airliners are protected from wear and tear. This is the most important moment in most countries due to the often updated laws on ecology and noise. And what about the states where the airlines are less creditworthy (for example, the countries of the former USSR)? Here operational leasing is the only way to purchase an airplane for an airline.

In addition, the company using it gets flexibility: it becomes able to manage the composition and size of the fleet, reduce and expand it in accordance with demand.

Depreciation

During operational leasing, aircraft equipment is not fully depreciated during the lease. After the expiration of its term, it can again be rented or returned to the owner. On the other hand, the residual price of an airliner upon completion of leasing is important to the owner. The owner can ask that the returned equipment be serviced (for example, C-check) in order to hasten the transmission to the next operator. Just as in other leasing spheres, a loan guarantee deposit is often required in an air-taxi.

How does "wet" leasing work in Russia? In the operating lease, the delivery time of aircraft is no more than seven, sometimes ten years. Leasing payments to the customer must be paid monthly, their amount depends on the term of the contract.

Special form

So, what is "wet" leasing? This is a special type of operating room when the aircraft is rented out together with the crew. That is, when the aircraft, its crew, insurance (ACMI) and maintenance, one airline (the lessor) entrusts to another or another type of business acting as an intermediary of air flights (the lessee) paying for administration by the hour.

The tenant delivers fuel, the payments also include taxes, airport fees, any other duties and so on. Its flight number is used. "Wet" leasing, as usual, lasts from 1 to 24 months. A shorter lease is considered a short-term charter flight on client's instructions.

Practice

"Wet" leasing (wet leasing) is usually applied during the peak season of transportation, either when opening new flights, or at massive annual inspections of the technical situation. Airlifters obtained with the help of this type of lease can make air transportation in those countries where lessees are prohibited from working.

This discipline can also be a form of charter, according to which the lessor provides the simplest work services, including ACMI, and the lessee balances the received assistance with the flight numbers. In all other forms of charter, the lessor issues flight numbers. Different variants of "wet" leasing can also have code-sharing with reservation of seats.

Political reasons

"Wet" leasing is a great tool. It can be used for political reasons. For example, the company EgyptAir - an Egyptian government company - can not transport passengers to Israel under its own name because of the policy of its state. As a result, flights of this country from Cairo to Tel Aviv is managed by Air Sinai. To avoid this political issue, it provides the "wet" leasing of EgyptAir.

In the UK, this discipline refers to the operation of an airplane on the operator's certificate (AOC) of the lessor.

Qualities

What else is good for "wet" leasing of an airplane? It consists of mandatory maintenance of equipment, its repair, insurance and other operations for which the lessor is liable. At the request of the lessee, in addition to these services, the owner can train qualified personnel, engage in marketing, supply raw materials and so on.

The subject of this type of leasing is often complex specific devices. Wet leasing in most cases apply either their manufacturers, or wholesale enterprises. Banks and financial institutions rarely resort to this type of transaction, since they do not have the necessary technical base.

In practice, there are many forms of leasing agreements, but they can not be viewed as separate types of leases.

Forms of lease

"Wet" leasing involves many different nuances. In international practice, the most common are such forms of lease transactions:

• In accordance with the leasing to the "Supplier", the seller of the equipment also becomes a lessee, as in the case of a return transaction. But leased property is not used by him, but by another tenant, whom he must find and hand over to him the object of the contract. Sublease is a prerequisite for such contracts.
• Leasing "Standard" provides for the sale of the object of the transaction of the financing organization, which through its leasing enterprises gives it to consumers.
• With a renewable form, the agreement provides for periodic replacement of equipment at the request of the tenant for more new samples.
• General leasing is the right of the lessee to increase the list of equipment received without concluding new contracts.
• Joint (group) leasing - leasing large facilities (rigs, ships, drilling platforms, aircraft). In such transactions, the owner of the equipment is several enterprises.
• A contracted lease is a special form of leasing, in which the tenant is provided with complete parks of cars, tractors, road construction and agricultural machinery.
• When a lessor from one or several creditors receives a long-term loan for up to 80% of the leased assets, leasing arises with the attraction of funds. Here creditors are large investment and commercial banks that own impressive resources, attracted for a long time. Leasing transactions are financed by banks with the help of borrowing or acquiring obligations.

These are only the most popular forms of leasing contracts. In practice, a combination of different forms of agreements is possible, which increases their number.

Commercial Airplanes

And yet, why is air travel necessary? It is used because of the high cost of airliners. For example, the Boeing 737 Next Generation in 2008 cost about 58.5-69.5 million dollars. It is used by Ryanair and Southwest Airlines. In general, few airlines can afford to pay their air fleet in cash, as they have a low profit.

Commercial steel birds are bought by airlines through more sophisticated financing and leasing techniques (by borrowing capital and borrowing). The most popular schemes for allocating commercial aircraft are financial and operational leasing, a loan secured. An example of a wet lease agreement can be obtained from any relevant firm. There are other options for paying for airplanes:

• A bank loan or financial lease;
• Real money;
• Operational leasing and sale or financial leasing;
• Manufacturer support;
• Tax leasing;
• EETCs (trust certificate for equipment).

These schemes primarily concern tax and accounting. They include interest, depreciation of tax deductions and operating costs, which can reduce tax liabilities for the financier, operator and landlord.

Private airliners

Leasing for the purchase of a private airplane is identical to a car loan or a mortgage. A basic transaction for a corporate or small personal aircraft can be done in this way:

• The borrower provides basic data on the expected aircraft and about the creditor;
• The lender finds out the price of the aircraft;
• The creditor searches for property on the registration number of the board to find problems in the property right;
• The creditor prepares the materials for the transaction: collateral agreement, bill of exchange, third-party guarantee (if the borrower is less creditworthy).

At the conclusion of such a transaction, credit documents are drawn up, ownership and money are transferred.