Definition of Leasing
In essence, an Aircraft is provided by a lessor (the owner of the Aircraft) to a lessee (someone who is leasing the Aircraft). The lessee is able to utilize the Aircraft any way they choose within the stipulations of the signed contract.
The lessee pays the lessor an agreed monthly fee for the use the Aircraft. Sky Diamond Jets acts as an intermediary in this process ensuring that the interests of both parties are taken into consideration.
Sky Diamond Jets provides a full wet lease turnkey solution from initial Aircraft choice to sourcing, contract negotiation, and signing/operations management. In the interests of both parties, Sky Diamond Jets also provides a full-time onsite Operations Manager, ensuring a smooth running of a wet lease as per contractual agreement.
There are five different types of Leasing. These are Wet lease or ACMI, Damp lease, Dry lease, Operational lease and financial lease.
Types of Leasing
Wet Lease or ACMI A wet lease is a leasing arrangement whereby one “Airline” or aircraft operator (the lessor) provides an aircraft, complete crew / only cockpit crew, maintenance, and insurance (Hull and third party liability) to another airline or aircraft operator (the lessee), which pays by hours operated.
The term ACMI is an acronym signifying Aircraft, Crew, Maintenance, and Insurance. (The 4 main components of a wet lease) Wet Lease (ACMI) solutions are ideal for start-up airlines, new route studies, seasonal or sudden demand peaks.
Wet Lease Aircraft also fulfill the interim needs created by long term fleet expansion plans while maximizing market share in the immediate term.
- Damp lease or AMI: AMI (Aircraft, Maintenance, and Insurance) is similar to an ACMI or wet lease, but the crew is provided by the lessee. Damp lease includes the provision that that crew provided by the lessee undergo safety and Emergency Procedures (SEP) training for the particular type of leased Aircraft.
- Dry Lease: The lessor leases just the Aircraft to a lessee. This transaction excludes the provision of a crew, maintenance, and Insurance. The lessee has to acquire an Air Operators Certificate (AOC) and provide registration for the Aircraft.
- Operating Lease: An operating lease is a long-term agreement that usually is compared to the short economic life of the Aircraft takes place within 2-7 years. This is beneficial for the lessee because they do not have to bear the cost.
- Financial Leasing: A lessee has the option of purchasing the Aircraft they are leasing after the lease term has been completed. The price is decided upon through negotiations with the lessor and is usually over 75 percent of the Aircrafts usable life.
Long leases are better for the lessor than shorter ones. The fewer changeovers an aircraft does during its life the better! The lessor may have to reconfigure the seating arrangements and such customization according to the preference of the new operator. This can cause unnecessary costs.
The lessor earns no revenue during the transition time between the previous and new operators.
Since leasing rate is fixed for a long time, any fluctuations in the value of currencies involved may cause loss to either lessee or the lessor.
Even though there are many laws to safeguard lessors, some airliners (like Kingfisher airlines) might not maintain your aircraft as agreed, or simply not pay. If this happens then the lessor may have to negotiate with the airline for an early return, or if the relationship becomes hostile, then an international seizing operation might have to be done.
Long term investment
Just like any other rental business, it takes 8 to 15 years for the plane to break even and make profit for the lessor. An average jet have a lifespan of about 25 to 35 years after which it may be sold to low budget airlines operating from poor countries or it is sent to scrapyard.