If you are an avid traveler, you have likely flown on a wet-leased aircraft. This is because some commercial airlines are wet-leasing aircraft for some of their flights. But, what does that mean?
Leasing is a widespread term when acquiring a vehicle over which you have operational control but not the ownership.
A lease is defined by a two party agreement, usually via a lease contract, in which the lessee agrees to pay the lessor to use an asset; and in case of aviation such lease agreements are usually arranged for aircraft and their engines.
Owning an aircraft is quite pricey even for large businesses like airlines since the cost of even the smallest passenger airplane can start at a whopping $89 million. So, the operators usually choose to lease aircraft for two main reasons: to reduce cost or to temporarily increase the capacity of their fleet.
Just like any business, airline operators are trying to generate the largest profit with the least costs involved, and buying an aircraft can leave a visible dent in an airline’s finances. That is especially so if an airline is cash-starved, in debt, has recently come out of bankruptcy protection, has a poor credit rating, or has just started operations.
At the same time, a leasing arrangement allows airlines to adjust their fleet size in reaction to an either growing or shrinking demand without any additional expenses. So, we can say that leasing allows for a much needed flexibility in the airline industry, especially after a turbulent period of the Covid pandemic, during which airlines and airports alike have sustained huge losses.
Now that we have clarified what leasing is and why airlines do it, let’s talk about wet-leased aircraft through the example of leasing a car.
When leasing a car, you get everything except for a driver and the fuel required for the time you use it. If you were to wet-lease the same car from before, you would be getting something more like an executive transportation service. Depending on the leasing company, the wet-lease would also include a driver, the fuel, and maybe other commodities.
So, how does this look like in the aviation industry?
According to the Federal Aviation Administration (FAA), a wet lease in aviation is “any leasing arrangement whereby a person agrees to provide an entire aircraft and at least one crew member.” Also, the leased aircraft will be covered by the leasing company with maintenance service and insurance. The airlines that wet-lease aircraft only have to worry about fuel and airport fees.
Whether it is a private jet charter or an airline, the primary purpose of fly services is to move passengers from one point to their destination. However, being an aircraft owner is not always the best option for some air travel companies. Buying a new aircraft can put a lot of pressure on both the finances and the operations of an air carrier.
Some of the most significant difficulties of an aircraft purchase include, but are not limited to:
Therefore, to avoid the issues described in the list above, it is familiar to wet-lease instead of buying. When wet leasing, the CapEx is reduced since the lessee is not actually buying the aircraft.
This also results in the lessee aircraft capacity being increased on an almost immediate basis since the lessor usually can provide the aircraft at short notice depending on the aircraft type required.
Other aspects make wet-leasing important. Let’s take a closer look at them.
Wet leasing is essential for the air travel industry. Big carriers such as United Airlines in the United States and Qatar Airways in the Middle East may have smooth operations even in peak traffic seasons.
Still, other airlines may need wet leases to ensure smooth operations during these times. And even big carriers may need leasing in more specific situations.
There may be political circumstances that prevent a particular air carrier from operating flights to a specific destination. For example, in 2017 – Bahrain, Egypt, Saudi Arabia, and the UAE cut ties with Qatar for political reasons, making it impossible for Qatar Airways to fly to those countries. Another example is Israel not allowing EgyptAir to fly to their territory. Here, wet leasing is a solution, so Air Sinai wet-leased EgyptAir flights to cover that route.
Also, wet leasing is essential for governments and airlines in case of unexpected events or testing new routes. The air carrier may operate with aircraft leasing to avoid losing flight operations due to fleet grounding, which usually happens because of safety reasons or when unplanned maintenance is needed.
This happened to Norwegian, an airline that saw a whole 787 Dreamliner fleet grounded and decided to wet lease as a solution to cover that unavailable capacity.
In short, the importance of wet-lease aircraft can be summarized by pointing out the main advantages.
While you may have noticed some of them, here’s a shortlist of the main advantages of wet-lease aircraft:
Of course, there are other ways for leasing companies to do business. One of them is dry leasing. Let’s dig deeper into the details of this alternative for aircraft lessors and the lessee.
A dry lease is similar to a wet lease because there is no actual purchase. In a typical dry lease, the lessor provides the aircraft for the lessee to carry out the flight operation. So, what is the difference, you may wonder.
The main difference between wet and dry leases lies in the lessor maintains operational control of the flight. While the lessor maintains operational management in a wet lease, in a dry lease arrangement, the lessee has complete control of the flight.
This also means the lessor does not provide a flight crew and has no responsibility on other duties such as maintenance and insurance procurement as it happens in a wet-lease.
Given those differences, a dry lease is usually a better option for big airlines that already have their own crew and ground staff to operate the flight and ensure proper servicing. This said, although not as obvious as it may be with wet-leasing, there are numerous reasons for airlines to opt for dry leasing.
These are the main advantages of dry leasing:
This is a market that has grown rapidly in recent years. And with the pandemic, many airlines saw their aircraft fleets and crew grounded for a very long time, making aircraft leasing business even more attractive.
In other words, any air lease corporation would want to have its market share, and we could see more aircraft providers rising to the occasion in the near future.
Hopefully, after this article, you have become more familiar with aircraft leasing and with the difference between a wet lease and dry lease. As you can see, aircraft leasing companies play a vital role in the aviation industry by offering pliable aircraft operation options to all types of airlines to keep the travel industry running smoothly and seamlessly. Without the option to lease aircraft, many airlines would indeed struggle financially to keep up with a fluctuating demand of travelers, especially in critical situations like the recent pandemic.
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