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To buy or to hire? - Plane lease
There' s a saying in transportation that says you should hire it when it is flying or swimming (there are also many rawer editions of this epigram). However, airline companies have historically purchased their aircraft, although many acquisitions have been arranges as financial lease, with lease payment rates disguised as rental to make them fiscally offset.
On the other side, however, airline companies are relying more and more on "operating leasing", under which they actually lease the aircraft for a number of years, with a lease provider assuming the risks of depreciation of its second-hand assets. GECAS with 1,732 aircraft and ILFC with 1,031 nautical miles over Delta (800) and American Airways (775).
Some of the heavy order book of aircraft manufacturers comes from lease companies who bet that there will be a further increase in rental aircraft sales. RBS Aviation, one of these large "airlines without passengers", was divested this weekend by the Royal Banque of Scotland, a state-rescued UK banking institution. The China Development Bond has failed to offer for RBS Aviation and can now look for another lease company to buy.
The ILFC is part of AIG, a divested US insurance company trying to resell it. The outlook for the lease industry is good, says Philip Baggaley of Standard & Poor's, a ratings firm. Airline companies do not have the money to fund their big refurbishment projects and they cannot lend money to buy new aircraft at low prices.
More and more, businesses are concluded in which airline companies are selling part of their current fleets to a leasing company and leasing them back: Air France-KLM wants to do this with aircraft with a value of ?700 million ($897 million). Peter Barrett, head of RBS aviation, says that air travel is increasingly becoming a hospitality business: "One kind of company specializes in holding the asset while another is operating it.
However, there is one important difference: a landlord cannot simply take back his space from a landlord who leaves the rental fee out, while lease companies can and often take back their airplanes. This makes the airplane lease less hazardous. However, this flexible approach does cut both ways: airlines that go into bankruptcy can cancel lease agreements and return airplanes, just as American Airlines' AMR does with some jetliners.
Dahlman Rose Investmentbank's Helane Becker says lease is widely misunderstood when it comes to fiscal relief: "In fact, a large part of the company assesses which plane retains its value and manages the risk associated with its ownership. Why buy at all if hiring airplanes makes good economic sense here?
Answering the question: What is the best way to get an aircraft? If you are a small, young airline without funds, if you are trying out a new line of service for which you need other aircraft, or if the manufacturers' order book is full and the only way to get an aircraft is to hire it, then rental can be a good option.
He does, however, argue that large carriers are better off purchasing airplanes and retaining them for their entire life of about 30 years. Just as with homes, the purchase is therefore less expensive than long-term letting. Perhaps the rate of expansion and return of the aviation lease industry reflects the short-term nature of the aviation industry.