NAFA member, Global Jet Capital, explains myths commonly associated with business aircraft operating leases.
There are more options today for accessing a business aircraft than ever before: from charter, to fractional ownership, to operating leases, to traditional financing. When dealing with large, highly-regulated assets that could cost tens of millions—or more—to own, weighing the options to find what makes sense for your specific requirements can be difficult. To make navigating the sometimes-complex landscape of business aviation a little easier, we’re going to clear up five common myths around operating leases—and explain some of the advantages of this frequently misunderstood financing option:
1. OPERATING LEASES ARE TOO RESTRICTIVE—IT’S BETTER TO OWN.
Operating leases let you keep your aircraft for the duration of the lease, which means consistently using your crew, being able to leave your personal effects on board, and enjoying the experience of ownership while putting your capital to better use. Some restrictions on customization that could potentially impact residual value and other usual lease terms apply, but limitations fall within normal patterns of ownership. With the right lessor, you can expect contract terms that are flexible and fit your unique needs, which make the experience of having an operating lease feel anything but restrictive.
Additionally, an operating lease with a predictable term makes disposition as simple as turning the aircraft back over to the lessor at end of lease—no additional planning or contingencies needed. Compare that to attempting to sell an aircraft when it’s time to upgrade or make changes to your operations. From hiring a broker, to waiting for months (or even years, in extreme cases) to find a buyer, to paying the costs of maintenance, insurance, and storage in the meantime, you may be looking at millions lost in the process.
2. YOU’RE STUCK IN A CONTRACT WITH AN OPERATING LEASE, WHICH MAKES IT INCONVENIENT WHEN YOUR BUSINESS CHANGES.
It’s true that operating leases are contractual, while owning a business aircraft outright is not. But, contracts can be created that adjust easily to a changing mission—including allowing for moves to larger or smaller aircraft, the option to extend, or the option to prematurely end the lease altogether. With the right financing partner, you can expect a flexible, custom-tailored contract that feels right.
In fact, ownership may have risks and limitations that exceed the limitations of a contractual obligation in an operating lease. If a major uptick in your international markets means that your newly purchased mid-range aircraft is no longer up to the task of supporting your business goals, you bear the risk of waiting a long time to sell with capital tied up in an asset that doesn’t suit your needs. When you’re finally able to sell and need to purchase a new business aircraft with a longer range, you’re looking at a potentially lengthy process to secure traditional financing from a lender, coupled with a much larger capital outlay than the refundable security deposit for a lease.
3. OPERATING LEASES MAKE SENSE IN BAD RESALE MARKETS OR WHEN INTEREST RATES ARE HIGH, BUT NOT WHEN RESALE VALUE IS STRONG OR WHEN INTEREST RATES ARE LOW.
Even if there is a strong resale market or low interest rates when you choose to purchase an aircraft, consider the risk that you’re taking on with the large outlay of an aircraft purchase. Traditional financing typically requires large down payments and due to volatile geo-political situations, emerging technology, and the natural realities of market fluctuation, there’s no guarantee that a strong resale market for your aircraft will be there when you choose to sell. That low interest rate environment may be gone, which won’t help entice buyers to purchase your pre-owned aircraft. In the meantime, you may have paid more for a depreciating asset.
Operating leases eliminate residual value risk and provide predicable costs for the duration of the lease. Budgeting stays precise, liquidity stays high, and the future becomes clearer. The resale market doesn’t come with any guarantees—an operating lease contract does.
4. OPERATING LEASES ARE ONLY FOR CERTAIN KINDS OF AIRCRAFT. YOU CAN’T JUST GET WHATEVER YOU WANT.
Whether you have your eye on a new or pre-owned aircraft, or if the pre-owned aircraft you’re interested in is a little older than what you would typically expect for a leasing arrangement, there are very few limitations to what can be obtained with an operating lease today.
Specialists in business aviation financing like Global Jet Capital look to spread risk across a large portfolio, encompassing aircraft from every major manufacturer, every global market, and a variety of age ranges.
5. YOU CAN ONLY ACHIEVE PRIVACY BY PURCHASING AN AIRCRAFT, NOT LEASING.
If privacy is important to you, a leased aircraft may actually provide an additional layer of anonymity. An operating lease reduces visibility to an aircraft’s end user, as the public records of the FAA identify the lessor as the owner of the aircraft, giving you greater privacy.
This article originally appeared in Business Jet Traveler, February 2021.
