The aviation industry has been ever-evolving for decades, with demands for leasing and financing options rapidly growing. In the industry, there are two basic options for airlines or charter brokers who wish to acquire an aircraft. They can either buy it outright or they can lease it, with the latter feeling more probable in many cases.
Over the years, leasing has become an integral part of the aviation industry. It has provided airlines with the flexibility to manage their fleet size, route networks, and capacity according to market demand. There are two types of leases: wet leases and dry leases, both of which are commonly used in the aviation industry.
This post will be discussing dry leasing in the aviation industry. We will look at what it means, its advantages and disadvantages, and how it works.
What Is a Dry Lease in Aviation?
Aircraft leasing is a common practice in aviation that allows businesses and individuals to use an aircraft without buying one outright. Despite their differences, the term “leasing” is often mistakenly used interchangeably with renting or chartering an aircraft.
Dry leasing is a popular option within the aviation industry. It is widely used by aviation companies that prefer to control the operation, maintenance, and insurance of their aircraft. Lessees also gain more control over the aircraft and can customize their operations and usage as per their requirements.
Unfortunately, the confusion around aircraft leasing often leads to misunderstandings, misleading advertising, and lawsuits. It is important for both lessees and lessors to fully understand the terms of their lease agreement before entering into a contract. This can help to avoid any misunderstandings, issues with liability and responsibilities, and legal disputes.
Dry Lease Meaning
A dry lease is a leasing arrangement where the aircraft owner (lessor) leases out the aircraft to the lessee. The lessee is usually the airline or the charter broker. In a dry leasing arrangement, the lessee takes on operational responsibilities, such as crew members and maintenance. On the other hand, the lessor bears the financial and regulatory risks. The lessee does not receive a complete package of services, which is why it is known as a dry lease.
Unlike wet-leased aircraft, in which the lessor provides the aircraft, crew, fuel, and insurance, dry leases are short-term operating leases. This involves leasing the aircraft without any crew or other support services. Dry leases are ideal for airlines or charter brokers looking for more control over their aircraft operations. It is also an added advantage when they have experienced personnel to crew and maintain the aircraft.
One significant advantage of dry leasing the aircraft is that the lessee can operate the aircraft under its own air operator’s certificate (AOC). This allows them to perform flights under part 135, which means operating on-demand flights for individual passengers or charter groups. This makes dry leases an ideal option for charter brokers who want to operate their charter services.
Dry leasing arrangements are often established between airlines and leasing companies that specialize in aircraft leasing. In some cases, airlines lease aircraft under dry lease situations, including older aircraft or ones that have been leased for several years. Dry leases can also be used as an easier way to transfer ownership of aircraft from one company to another. Fractional ownership has also proven to be a viable means for some in special cases.
Dry Leasing Advantages
- Reduced financial risk
- Lower cost
- Maintenance by the lessor in some leases.
- No residual value risk
Dry Leasing Disadvantages
- Limited control
- No equity for the lessee
- Strict payment schedules
- No tax benefits for the lessee
- Accountability for damages and maintenance costs
How Does Aircraft Leasing Work?
Aircraft leasing has become a popular way for airlines and other aviation firms to operate flight services without purchasing an aircraft. Many people wonder how aircraft leasing works. Here are some answers to address different parts of this query.
How does aircraft dry leasing work?
The process of aircraft dry leasing is quite simple. An airline or a company contacts a leasing company to lease an aircraft. The leasing company owns the aircraft and is responsible for maintaining, registering, and insuring the aircraft. The lessee does not take ownership of the aircraft but pays the cost of using it. The lessee takes care of all the operating expenses, such as fuel, insurance, maintenance, and other costs.
What should the lessee/lessor do?
The lessee is responsible for the operations of the aircraft, such as pilots, maintenance, insurance, and fuel costs. On the other hand, the lessor is responsible for ensuring that the aircraft complies with all aviation regulations, and they carry out periodic maintenance checks on the leased aircraft.
Before signing a lease agreement, the lessee and lessor should carry out due diligence on each other. The lessee should assess the lessor’s financial standing, reputation in the industry, operating history, size of the aircraft fleet, and other important factors. The lessor should conduct a similar assessment on the lessee to determine their creditworthiness, experience, and overall viability.
What to consider?
When considering aircraft dry leasing, there are several factors to consider. Factors such as aircraft maintenance, insurance, crew salaries, and fuel costs. These costs will determine the lease fee, and it is essential to choose a leasing agreement that suits your budget. Other factors to consider include the aircraft’s age and condition, the industry’s demand for similar aircraft, and regulatory compliance requirements.
How much is the cost?
The cost of aircraft dry leasing will depend on many factors. This includes the size, age, and condition of the aircraft, the demand for similar aircraft, and the lease term. Typically, the fees for the lease the lessee will pay varies between 1.3-2% of the aircraft’s value per month. Lessees usually make a deposit, and the rest of the fee is expected in monthly or yearly intervals.
What is included in the lease?
The lease agreement includes several key terms, such as aircraft identification, the duration of the lease, and the lease fee. It may also include specific terms such as the maintenance schedule, repair costs, and insurance expenses. It’s crucial to clarify what is included in the lease agreement to avoid confusion and disputes.
What is the importance of a written agreement?
It’s crucial to have a written lease agreement to protect both parties. The written agreement should include the terms of the lease, the responsibilities of each party, and other important details. The written agreement will ensure each party’s rights and obligations are protected and can be legally enforced if necessary.
Dry leasing makes life easier for both the lessee and the lessor.
Dry leasing offers a reliable way for airlines and other aviation companies to operate flight services without purchasing an aircraft. It provides a flexible option for lessees that want to customize their operations and usage. When considering leasing an aircraft, it is important to consider factors like costs, maintenance, and insurance. Both parties should have a written agreement that outlines the terms and conditions of the lease to protect their interests. As airlines continue to grow and evolve, we can expect dry leasing to become more prevalent in the industry.
Now that you know the requirements and conditions that come with dry leasing an aircraft, you’re good to go. You can cruise in the air while resting on your JetBed. With dry leasing, you get to fly like an owner all through the number of hours you spend in the air. So, ensure you fly the right way – JetBed is the comfortable way to fly while enjoying all the luxury and convenience that flying has to offer.