You must have heard about wet leasing and dry leasing of jets by industrialists and air companies. Read whatin this article what this has to do with airplane leasing.
Buy or Lease an Airplane – Dilemma of Big Money
Air travel is big business and spins lot of money. When the conditions are not favorable, the industry can be in doldrums in a flash of time. When the going is good, there is demand for aircraft seats all the time, but when the industry slumps the industry may find it difficult to make the payments of aircraft installments or the lease payment.
What is Dry Lease, Wet Lease and Damp Lease
When you get a car on lease, you have the choice of leasing only the car, or leasing the car with the driver, or leasing the car with driver but without fuel. If you have gone through the terms like this it might be easy for to understand the dry lease, wet lease and damp lease.
Dry Lease: Dry leasing of an air craft is leasing of just the aircraft without operating personnel. The aircraft may be operated by the competent persons of the airline. The company may have the persons on its payroll or may hire these from outside. The responsibility of the lessee is completed on providing the aircraft and may be insurance. Such arrangements are not with code sharing (a euphemism for revenue sharing or seat sharing) arrangements.
Wet Leasing: The leasing company gives the airplanes, the crew and the fuel. In this arrangement it is usual for the leasing companies to ask for seat sharing arrangements. A company having sufficient arrangement for the present and trying to expand its operations may adopt such leased airplanes before going in for full scale expansion of the fleet. The can continue until its new fleet of air craft arrives in 2 or 3 years time.
Damp Leasing: The damp leasing is a variation between the wet and dry leasing. Here the leasing company may provide everything except the fuel. As the fuel costs play a major part in making or breaking an aircraft carrier company such options are good for leasing companies.
How Leasing Is profitable For Airlines
Air lines leasing the airplanes profits in many ways from aircraft leasing
1. During the boom time, when the company does not have aircrafts for its operation, the aircrafts can be leased and the effects of boom time can be reaped. Profits during boom time may be utilized to pay for the purchased aircrafts
2. Cash flow can become better with leased aircrafts. The air crafts purchases are a huge financial burden. The payments can make or break an airline company. With leased aircrafts however the companies continues to make a profit, albeit on a lower scale.
3. There is no down payment necessary for leasing an aircraft. So the cash flow for the company improves greatly.
4. The leasing operations are 100% tax deductible. That means Airline Company pays lower taxes for the same turnover. With purchased aircrafts you pay the interest on loans and only the interest are qualified for the income tax waver. This means the company pays more taxes as a result.
As always the leasing or buying are the options best left to the accountants of the company