Aircraft Leasing
ABA recognise the business case where leasing is the best solution
Benefits
ABA specialises in certain aircraft types for operating leases, which can, under certain circumstances, be anywhere in the world. Leasing reduces cash-flow burdens for airlines, is tax effective and can often help in route development. The normal minimum term is three years but we will look at shorter-term leases. We are also effective, on a consultancy basis, at acting for Lessees in negotiating lease terms with prospective lessors.
TYPICAL OPERATING LEASE STRUCTURE
An operating lease is an agreement between the Lessor (normally also the
owner) and the Lessee, the aircraft operator. The following is a very
simple overview of an operating lease and how it works:
TERM: The term of the lease, from delivery to redelivery is usually between
3 and five years.
SECURITY DEPOSIT: The amount depends on many factors but usually 3 - 6
months rental in advance.
RENTAL: The monthly payment for the aircraft usually between 2 - 5% of
capital value.
RESERVES: The amount paid in order to cover overhaul/deep maintenance on
expensive components.
LEGAL COSTS: Lessor produces draft contract, Lessee responsible for all
legal contract costs thereafter.
There is, of course, a multitude of detail in the lease agreement covering
every thought of eventuality. However, the basic premise of the agreement
is that providing the Lessee is not in default then the Lessor will let
the Lessee operate almost as if the aircraft was owned by the Lessee. At
the outset the Lessor will normally require a briefing on the Lessees business
plan or strategy, confirmation of financial strength, verification that
the Lessee has the necessary management and organisational infrastructure
in order to operate the Lessors asset properly and safely and to keep it
well maintained.
CONDITIONAL SALE AGREEMENT
This is very similar to the Operating Lease in terms of the structure.
However, the spirit of the agreement changes so that the Lessee has the
right to purchase the aircraft through the lease term at a reducing value.
A Conditional Sale will normally have a larger deposit - typically 25
- 30% of agreed value and the lease rate will include an element of principle
- not unlike a mortgage or hire-purchase agreement.
LEASING OR CONDITIONAL SALE FROM ABA
ABA will normally lease/conditional sale its own assets to UK or European
operators but will consider further afield in certain cases. Lessees
must demonstrate their abilities to both finance the transaction and
to operate the aircraft as described above. Once satisfied ABA will require
a Letter of Intent which shows the heads of agreement along with a non-refundable
down payment of between $5,000 and $15,000 depending on the deal size
(This covers abortive legal costs). ABA will then produce a draft contract
for the Lessees consideration. The Lessee will be responsible for all
the legal costs after initial draft production. Once the contract is
signed ABA will require the security deposit (per the above) but the
down payment will, at this stage, be credited as part of the security
deposit. ABA's lease rentals are competitive and typically will be in
the 2 - 3% range. Reserves are commingled with the Lessors funds and
are drawn by the Lessee through an agreed and fair process to pay for
items such as engine overhaul, landing gear overhaul or major airframe
checks. The contract will show items such as delivery and redelivery
condition/dates, insurance requirements, maintenance requirements, events
of default and so on. Once the Lessee has taken delivery of the aircraft
ABA will require regular and structured reporting.
LET ABA DO THE NEGOTIATING FOR YOU (LESSEE) OR HELP YOU (LESSOR)
ABA has a significant portfolio of contracts in the aircraft finance world
and has been responsible for negotiating, restructuring and concluding
credit based deals worth tens of millions of US dollars. ABA are also
able to provide a "policing" service for financiers, banks
and lessors in order to protect and advise on their aircraft when these
are operated overseas.