Small Aircraft Leasing

For both individuals and companies, aircraft ownership may be an interesting idea. However, aircraft ownership does not necessarily mean making a direct purchase of individual or business aircraft.

In fact, many aircraft operations in business aviation take place with the aircraft owners being leasing companies.

While the lease term is widely used across the automotive and aviation industry, aircraft leases are different as they can take one out of two forms: wet lease and dry lease.

Wet leases are more common for big leasing firms and airlines since it requires the operating lease organization to provide at least one flight crew member apart from the aircraft. Also, the aircraft owner, which is the lessor, keeps the flight operation control and an FAA commercial operating certificate is required.

On the other hand, the leasing form called dry is the one that involves aircraft owners only providing the aircraft without crew.

If you want to go deeper into the details of leasing for airlines we invite you to check our Aircraft Financing and Leasing Fundamentals course.

Now let’s focus on how leasing work for small individual and business aircraft.

Business aircraft lease

Both buying and leasing business aircraft can create financial, legal, and tax-related situations that may or may not be beneficial. It all depends on the specific individual or corporate parameters that factor in the decision, as well as the economic environment at the time of the operation.

Quite often the aircraft used to operate businesses does not give companies an advantage. However, benefits can be gained via a variety of methods like a partnership, chartering, or lease.

All these methods offer positive aspects that will determine the cost to cover traveling needs, the level of productivity increase, and other potential costs measured by your specific financial and operational parameters.

Specifically, leasing allows the acquiring business aircraft without the need for significant investments, large debts, and long-term commitments. In other words, it offers you the opportunity of “trying before buying”.

Another interesting aspect of business aviation leasing is that it allows the owner to avoid possible financial losses due to depreciation in a future sale.

Of course, the question you may be asking now is how can one become the owner of a small aircraft with a small budget?

Small aircraft ownership

Companies with high capital lease aircraft for different reasons that include practicality and cash flow, and these companies usually do not have much trouble finding the best option. Also, some private companies may prefer to be direct buyers for the prestige and tax benefits like deductions they can get on aircraft depreciation and expenses associated with using the aircraft for business purposes.

However, to enjoy business aviation with high aircraft values, smaller budgets need to find alternatives to cover the costs associated with buying an aircraft and operating it or to cover lease payments.

While sole ownership can be very attractive for different reasons such as the prestige of having your own aircraft, having it available at all times, and not having to share it with people you may not know very well, there are other considerations sole owners need to take into account.

On the one side, the initial investment is usually high, and while there may be a broad range of small aircraft in the market, not all of them may be affordable for the sole owner. Also, there are other costs and operations that will require attention. Let’s take a look at some of them.

Aircraft maintenance

As it happens with any other machine, even the simplest models of small aircraft require regular maintenance in order to operate properly. Also, aircraft maintenance tasks are required to comply with regulations such as the ones imposed by the Federal Aviation Administration (FAA) which are known as the Federal Aviation Regulations (FARs).

For the simplest of models, maintenance can go as high as $2,500 a year. Nevertheless, owners need to keep in mind that even while performing regular maintenance on the aircraft, some components may eventually fail and require replacement, which usually results in increased maintenance costs.

While not part of maintenance operations, the owner needs to account for a hangar or an adequate tiedown place at the least which also adds to the costs.

Aircraft registration

When financing an aircraft purchase, only a very special finance company will offer mortgages that will deal with all things related to aircraft maintenance and aircraft registration.

Therefore, it is very likely that owners will need to go through the process themselves by seeking some form of professional advice that will increase costs.

Professional advice is recommended when the finance company does not cover this process because, as law experts in Wiley explain, “By federal law, the mortgage on a U.S. registered aircraft will be filed with the FAA Civil Aircraft Registry in Oklahoma City, Oklahoma. Aircraft registered in other nations will benefit from similar national lien registries, and many aircraft mortgages must also be registered on the International Registry of Mobile Assets. Any “non-aircraft” assets associated with the aircraft (such as records, warranties, and loose equipment) are taken as security for the loan by lenders with typical lien filings in local jurisdictions.”

Aircraft insurance

Considering insurance is a must since it will be a requirement for financing. Besides, when investing a large amount of money in an asset like aircraft, it is always recommended to have insurance to protect such an asset.

Of course, we should also add operational costs like gas, oil, and other airplane variable expenses, but you already get the point. It is not only the purchase cost that makes sole ownership difficult.

And while there are alternatives to enjoy business aviation such as fractional ownership, a type of partnership that allows the possibility of splitting the costs among several owners, if the airplane will be used temporarily or occasionally a charter or lease may be a better business as it reduces the risks.

Leasing a small airplane

Even if you still want to buy a small airplane, leasing one may be a good idea as it gives you the possibility of trying before you buy.

Perhaps you can get what is called a finance lease, with a lease term including a purchase option, where the lessee makes payments to the lessor that represent around 90 percent of the total price of the airplane before deciding whether you want to keep full ownership. However, a lessor usually offers these leases with a term that is more than 75 percent of the aircraft’s useful economic life, something important to consider.

Also, whenever you consider leasing your best option, it is recommended that you do it with a knowledgeable and reliable fixed-base operator (FBO) or dealer, but keep in mind they will retain the risk of residual value so you may need to pay a little more for the leased airplane.