Learn the basics of lease financing options and sources for aircraft operators and owners. Discover the advantages and disadvantages of the most common aircraft leasing structures.

ower by the Hour is a unique lease structure commonly used for aircraft engines. The lessee pays based on the hours the engine is operated. It is beneficial for airlines as it aligns costs directly with usage. In my role, I have helped airlines assess the feasibility and cost-effectiveness of 'power by the hour' arrangements. Sometimes, aircraft manufacturers offer leasing options like Manufacturer Backed Lease: directly to airlines, often to promote new aircraft models. These leases can include favorable terms and support from the manufacturer. In my consultancy, I have facilitated negotiations between airlines and manufacturers for such leasing arrangements.

What are the most common aircraft leasing structures?

If you are in the aviation industry, you probably know that buying an aircraft is not the only option to acquire one. Leasing is a popular alternative that offers flexibility, cost-effectiveness, and access to the latest models. But what are the most common aircraft leasing structures and how do they differ? In this article, we will explain the basics of lease financing options and sources for aircraft operators and owners.

1 Dry Lease

A dry lease is a type of aircraft lease where the lessor provides only the aircraft itself, without any crew, maintenance, insurance, or operational support. The lessee is responsible for all these aspects and has full operational control over the aircraft. A dry lease is usually long-term, ranging from several months to several years, and is often used by airlines, charter operators, or private owners who need additional capacity or want to avoid the risks and costs of ownership.

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Ahmad M. Mandili

Director of MRO Operations Systems | Vision 2030 | Executive Management | Operations Technology | Digital Transformation | AMOS SME | Prosci® Certified Change Practitioner
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Dry leasing is one of the primary aircraft leasing structures wherein an aircraft is leased without crew, maintenance, insurance, or any additional services. The lessee (the airline or operator) gains possession and operational control of the aircraft for a fixed period, managing all aspects of its operation. In contrast to wet leasing, where the lessor provides the aircraft along with crew, maintenance, and insurance, dry leasing offers more flexibility for the lessee to customize the operations, select their own crew, maintenance providers, and insurance options. It's a common choice for airlines seeking a standalone aircraft without bundled services, allowing them greater control over its use and operations.

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Claudia Cerqueira

Advogada. Especialista em Direito Civil e Direito do Consumidor. Pós-Graduanda em Direito Imobiliário. Membro da Comissão de Direito do Consumidor na OAB/BA
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O leasing aeronáutico funciona como um aluguel feito por bancos, financeiras e empresas às companhias aéreas, que pagam um valor mensal e são responsáveis pela operação e manutenção. Grande parte das companhias aéreas prefere esses contratos à compra de aeronaves, já que uma das vantagens é o menor custo. Deve-se ainda observar que houve a sanção da Lei nº 14.355/22 onde está prevista a redução do IRPF para pagamentos feitos por empresas brasileiras no exterior advindo de leasing de aeronaves com validade até final do ano de 2026. Caindo no ano de 2023 de 15% para zero, em 2024 para 1%, em 2025 para 2% e em 2026 para 3%.

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2 Wet Lease

A wet lease is a type of aircraft lease where the lessor provides not only the aircraft, but also the crew, maintenance, insurance, and operational support. The lessee pays a fixed or variable rate per hour or per block hour, and has no operational control over the aircraft. A wet lease is usually short-term, ranging from a few days to a few months, and is often used by airlines, charter operators, or private owners who need temporary or seasonal capacity, or who want to test a new market or route.

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3 Sale and Leaseback

A sale and leaseback is a type of aircraft lease where the owner sells the aircraft to a lessor and then leases it back for a fixed period and rate. The owner can free up capital, reduce debt, and enjoy tax benefits, while the lessor can earn a steady income and depreciation allowances. A sale and leaseback is usually long-term, ranging from several years to the end of the aircraft's useful life, and is often used by airlines, charter operators, or private owners who want to improve their balance sheet or liquidity.

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4 Operating Lease

An operating lease is a type of aircraft lease where the lessor retains the ownership and residual value risk of the aircraft, while the lessee pays a monthly or quarterly rental fee and has the option to return, renew, or purchase the aircraft at the end of the lease term. An operating lease is usually medium-term, ranging from a few years to less than 75% of the aircraft's useful life, and is often used by airlines, charter operators, or private owners who want to avoid the risks and costs of ownership and have flexibility in their fleet management.

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5 Finance Lease

A finance lease is a type of aircraft lease where the lessor transfers the ownership and residual value risk of the aircraft to the lessee, who pays a monthly or quarterly rental fee and has the obligation to purchase the aircraft at the end of the lease term. A finance lease is usually long-term, ranging from more than 75% to 100% of the aircraft's useful life, and is often used by airlines, charter operators, or private owners who want to own the aircraft and enjoy tax benefits.

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6 Synthetic Lease

A synthetic lease is a type of aircraft lease where the lessor is a special purpose entity (SPE) that borrows funds from a lender and leases the aircraft to the lessee, who has the option to purchase the aircraft at the end of the lease term. A synthetic lease is usually long-term, ranging from several years to the end of the aircraft's useful life, and is often used by airlines, charter operators, or private owners who want to off-balance-sheet financing and tax benefits.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Cmdr (Dr.⁹) Reji Kurien Thomas , FRSA, MLE℠

I Empower Sectors as a Global Tech & Business Transformation Quantum Leader| Stephen Hawking Award 2024| Harvard Leader | UK House of Lord's Awardee | Fellow Royal Society | CyberSec | CCISO CISM CCNP-S CEH
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ower by the Hour is a unique lease structure commonly used for aircraft engines. The lessee pays based on the hours the engine is operated. It is beneficial for airlines as it aligns costs directly with usage. In my role, I have helped airlines assess the feasibility and cost-effectiveness of 'power by the hour' arrangements. Sometimes, aircraft manufacturers offer leasing options like Manufacturer Backed Lease: directly to airlines, often to promote new aircraft models. These leases can include favorable terms and support from the manufacturer. In my consultancy, I have facilitated negotiations between airlines and manufacturers for such leasing arrangements.

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Fernando Alegret ∴

Especialista em Remarketing e Gestão de Frotas | Desmobilização de Ativos | Estratégia Comercial e Operacional
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The most common leasing structures for aircraft include the "Operating Lease", where the aircraft is rented for a specific period and returned to the lessor at the end of the contract; and the "Finance Lease", where the aircraft is financed by the lessee with the option to purchase at the end of the contract for a residual value. Additionally, "Sale and Leaseback" is another common structure, in which the owner of the aircraft sells it to a lessor and leases it back for a specific period.

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What are the most common aircraft leasing structures?

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1 Dry Lease

2 Wet Lease

3 Sale and Leaseback

4 Operating Lease

5 Finance Lease

6 Synthetic Lease

7 Here’s what else to consider

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