It is no secret that buying aircrafts can be costly, especially when airlines and charter companies are buying more than one model for business operations. The huge amount of money spent on aircrafts purchase can challenge a company’s cashflow. Meanwhile, maintaining aircrafts and supporting an entire operating team can be enormous measures that require efforts and money. Instead of purchasing airplanes by one-off payments, many flight operators may opt to lease aircrafts from other plane owners under a leasing arrangement. This way, both the lessor and lessee can focus more on their own business area and have better control over their liquidity level.
There are two different types of leasing arrangements – dry lease and wet lease. Both enable the lessee to lease aircrafts from the lessor without buying them. The main distinguishing factor between the two is that a dry lease only provides the aircraft in the deal, while a wet lease supplies not only the aircraft but also operational service as a package.
Dry leasing refers to a leasing arrangement where the plane owner provides only the aircraft to the lessee without providing crews or operational support. This type of leasing arrangement is commonly found in the commercial flight industry as large airlines tend to prefer taking full control over their staff to standardize customer service.
Dry leasing offers a lot of benefits to the lessee. For example, it allows the lessee to test out an aircraft type before committing to a purchase. It also provides convenient access to a large variety of aircrafts almost immediately, considering the waiting time for new aircrafts to be delivered is usually long.
A typical dry lease would last from 3 to 5 years while the lessee can rent and return an aircraft after every few years to avoid monetary loss from the depreciation of the plane’s market value. A dry lease can also help a company to shore up liquidity, reduce financing obligations and save cash from aircraft purchase.
Advantages of dry leasing:
– facilitates lessee to test out the aircraft type before committing to a purchase
– reduces financial impact owing to aircraft depreciation
– allows lessee to change aircraft frequently without worrying about depreciation
– ensures high level of customer satisfaction with lessee’s own aircrew training
Wet leasing occurs when an aircraft owner (lessor) provides aircraft leasing service to airlines or flight operators (lessees) in a range of operational services – aircrew, ground staff, Air Operator Certificate (AOC), maintenance, and insurance are all inclusive in the package. Wet leasing is more commonly seen in the private jet charter industry as this type of leasing contract allows a more flexible flight arrangement. With the entire operation provided by an established leasing company, high standard of flight experience for passengers onboard can be guaranteed.
Some companies would choose wet lease over dry lease mainly because of the convenient package offered by the leasing company. Apart from miscellaneous expenditures such as fuel, taxes, and airport fees, the lessee does not have much to worry about as the flight is entirely operated by the lessor. The term of wet lease is usually shorter than that of the dry lease and commonly lasts from a month to two years. Wet lease flights are ready to take off, thus providing an increase in capacity during peak seasons when there is a large demand in operating flights.
Advantages of wet leasing:
– there are fewer worries for the lessee as the flight is operated entirely by the leasing company
– flights are good to go in short notice as all operating arrangements are pre-set
– the lessee enjoys a more flexible cashflow without purchasing aircraft assets
– the lessee does not need to maintain an entire operating team with long-term contract
Both dry lease and wet lease arrangements offer benefits and convenience to flight operators to ensure a high level of flexibility in terms of aircraft lineup capacity and financial arrangements. The difference between the two leasing methods is the operational control over the flight. There is no absolute answer as to which is better. The choice really depends on the situation and the requirements of the operators.
It is important to understand the differences between the two arrangements as there are different regulatory obligations and legal requirements to fulfil. A leased aircraft under a dry lease contract is normally under a Part 91 certificate while a wet lease typically involves a Part 135 certificate. Failure to comply can result in problems for all involved.