So, as we have already said, there are many reasons to once again draw the attention of our readers to the place and role of modern approaches to tools for providing domestic airlines with the necessary aircraft equipment.
Firstly, the January change of the head of the UAC “heated up” the discussion of possible ways to develop the aviation industry, including its civilian sector. Secondly, designing and building an aircraft today, in a certain sense, is easier than selling it profitably on the free market given the current drop in effective demand and a large number of offers in a competitive environment. A logical question arises about expanding the list of all possible schemes, what else can be used to implement all the aircraft already built and in the UAC production plan? Thirdly, there have been significant changes in the political situation in the world; sanctions and other restrictions on trade have entered the agenda. Fourthly, the economic situation has also changed: the fall of the ruble, fluctuations in cross-currency rates, the faster economic growth of some countries compared to others. Fifth, which is of particular importance for the air transport industry, is a significant decrease in oil prices and, as a result, cheap kerosene.
Here are just a few points characterizing the dynamic nature of the changes, as well as the external and internal conditions of the aviation industry and the air transport industry.
Before turning the conversation to the specifics of the schemes, it should be recalled that a modern aircraft, especially one that has just left the final assembly shop, is a high-tech product with a high initial cost. A new regional turboprop aircraft is being put up for sale with a price tag ranging from 10 to 30 million dollars, a 100-seat regional - from 35 (according to the January price list of Toulouse aircraft manufacturers, the price tag for the A318 is US$74.3m), for a narrow-body mainline they are asking over 60 million " green" (A320 US$97.0m), widebody - more than 200 (A330-200 US$229.0m).
Not all airlines can purchase such expensive cars with their own funds. They have to turn to banks and leasing companies for help. Together they are trying to find mutually acceptable forms of cooperation. Various financial instruments are used. Let's look at the most popular of them.
financial leasing
This is a well-known, long-used and proven mechanism that is widely used both abroad and in our country. Among investors, financial leasing is usually considered, by and large, as an airline loan. We are talking about providing access to funds for the purchase of aircraft in installments. What is important for the investor here is not what kind of aircraft the aviators are asking for (their choice is not questioned), but what kind of borrower? “Good” airline borrowers are given a loan, while “bad” airlines are refused. The airline uses the funds received to buy the aircraft from the owner (manufacturer) and operates it, paying off the loan debt in regular payments in previously agreed amounts. Typically, the loan is repaid within 10-15 years. Then the encumbrances are lifted and the airline becomes the full owner of the aircraft. Many large, financially stable airlines use financial leasing. They are ready to both accept and manage the risks of the residual value of the aircraft.
A classic example is the German airline Lufthansa. It has a large aircraft engine fleet, transports a huge number of passengers, and works punctually and accurately in German. Investors are happy to give money to such clients.
Let us repeat that we are talking about providing financing on a repayable basis “for the borrower.” Which airline purchases the aircraft (its type and modification, technical condition), who its designer and manufacturer are - investors look at such topics in the second place. The loan is issued “for the borrower”, his balance. The airline took over the plane - liquid, illiquid - it is responsible for it with its balance sheet. However, finance leasing typically uses all other means of securing the borrower's obligations, including pledging the aircraft and setting up special purpose vehicles in generally accepted jurisdictions.
Operational leasing
But what if the airline is not as powerful and strong as Lufthansa? World practice shows that financial leasing is also applicable in this case, but with reservations. Investors and banks are tense: what kind of airline is this, will it be able to pay accurately? If there are doubts about this, they offer loans “for the product.” The first place is not the quality of the borrower, but the aircraft, which is the object of financing and is the object of collateral.
In such cases, investors say: “We see that this aircraft is a liquid product. If it is properly operated and regularly and fully undergoes maintenance and repair (MRO), it will retain its market value. If something happens to the airline, we can confiscate it and offer it to another client.”
Such mechanisms as operating leasing help to implement this scheme. Lending goes against the property, and the quality of the borrower becomes less important than with financial leasing. Although, of course, it remains under consideration.
The introduction of operational leasing into practice as an addition to other aircraft sales schemes expands the number of airlines that gain access to the expensive aircraft they need.
True, a very weak client will not be given a plane under operating lease: investors need to be shown that they can count on regular payments. They also want to be sure that if such a need arises, the aircraft can be removed quickly enough (this means that it is important to be in the appropriate legal environment - this is a separate story, more related to the peculiarities of national legislation and the applicability of “best global practices”). Otherwise, they will not waste their time and will go looking for another client (taking into account the country), more reliable.
Operational leasing is attractive to investors because the aircraft is a liquid collateral. Unless, of course, you make a mistake with its manufacturer, type, modification, and so on. As a rule, investors entrust their funds to a leasing company whose employees have sufficient experience in the aviation market. It consolidates its own funds and those entrusted to it by investors to place an order for a relatively large batch of aircraft in order to obtain the best deal terms from the manufacturer (price per unit of production, delivery time, technical support, and so on).
The leasing company purchases a batch of aircraft from the manufacturer or on the secondary market and begins to assign them to airlines under operating leasing terms. A new aircraft is transferred from the factory to the carrier for a relatively short period (compared to financial leasing) - often up to seven years. Upon expiration, the car is returned or the contract is extended. As a rule, in the middle of an aircraft's life cycle the terms of its operational leasing are five years, towards the end - three years or even less.
Practice shows that successful aircraft produced in large quantities remain in service for 25-30 years or more. Over the first five, seven, or ten years (depending on your luck), the car “returns” a significant part of the funds invested by the investor in its purchase. And he makes a decision: continue to lease it out for operating lease or sell it at its residual value?
The American leasing company Air Lease Corporation (ALC), through the head of the department of strategic planning and interaction with investors, Mr. Ryan McKenna, formulated its strategy for working in the market as follows. “We strive to organize our work so that the purchased aircraft spends the first third of its life with us. Even before delivery from the manufacturer, we enter into an agreement with the airline to transfer the vehicle for long-term lease. When the aircraft reaches seven or eight years old, we sell it [to the airline] in installments.”
Airlines benefit too
Thanks to leasing schemes, small and medium-sized carriers that do not have a good credit history (and start-ups do not have one at all) have the opportunity to replenish their aircraft fleet, transport passengers with the required reliability of scheduled departures and providing acceptable comfort on board the aircraft. In addition, they gain additional planning flexibility. It’s rare that any airline executive can honestly boast that he has a full understanding of how the business and the air transportation market under his control will develop over the next 10-15 years? But, as a rule, there is some understanding for five to seven years.
Operational leasing is important for airlines in that it gives them the opportunity to obtain temporary use of expensive equipment, for the purchase of which they do not have sufficient own funds or the opportunity to purchase in installments using a bank loan. In addition, it makes it possible to manage the fleet with a high degree of flexibility: if in five years the situation changes, the previously taken aircraft can be handed over, and some other aircraft of a different brand and capacity can be taken.
This flexibility makes life easier for airlines. In particular, because they work on newly opened routes, the economic return from working on which is not yet clear. To start flying, aviators take used equipment on an operating lease basis and work on it in the hope of “rolling out” routes. If their plans can be achieved, then, after three to five years, they take operating leases on newer aircraft and, as a rule, with greater capacity.
This scheme is also interesting because the airline does not care about residual value management issues. How much will the plane cost in five years? This is not the concern of aviators, but of leasing companies and their investor partners. Having relieved itself of the “extra” burden of worries, the airline focuses on issues of operational activities, flight safety, personnel training, and so on.
In short, with operational leasing there is a clear division of responsibilities between the operator and the owner of the aircraft, but with financial leasing they merge. In the latter case, the operator and the investor act as one person.
Due to its flexibility and affordability, operating leasing is becoming increasingly popular in the global aircraft market. Manufacturers like this because it serves to stimulate demand for their products, parts and services, including through the activation of processes in the secondary market.
This practice began to be introduced in the seventies of the last century and its market share gradually increased. Among all transactions on the market in 2010, it reached 40-50%. Today, operating leasing schemes are involved in no less than half of all transactions on the market, and according to individual marketers there are even more of them - about two-thirds.
Leaseback
Leaseback is a relatively new, interesting practice that has gained popularity in the world market in the current 21st century. But it does not enjoy the popularity it deserves in our Fatherland. And therefore, in the conversations of Russian-speaking industry professionals, it is often mentioned using the English phrase “sale - lease back” or the abbreviation SLB. It would not be very correct to place leaseback separated by a comma after financial and operational, since leaseback is theoretically applicable to both types of leasing.
Traditional leasing-back technology involves an enterprise selling its equipment and real estate to a leasing company and then using it under lease terms. Thus, enterprises attract additional financial resources, and in some cases have the opportunity to save on taxes. However, the practice of leaseback transactions for new aircraft is widely used in the aviation industry.
The matter begins with the fact that the airline selects a certain type of aircraft and approaches its manufacturer with an offer to sell a certain number of similar aircraft within a specified period. Subsequent negotiations are carried out in order to clarify the delivery time, the execution option with all the details, and, most importantly, the cost of the contract. Well-known airlines often negotiate very large discounts for themselves, which leasing structures are not always able to obtain.
Having fixed the achieved parameters of the transaction in the appropriate agreement, the airline turns to the leasing company, transferring the newly acquired aircraft to it. It is transferred from the airline’s balance sheet to the leasing company’s balance sheet, and the aviators undertake to lease this aircraft on pre-agreed terms.
Why is the leaseback scheme attractive to airlines? We talked about the benefits of direct purchase from the manufacturer above. And also, when a contact has already been signed with the manufacturer with an agreed price for the aircraft, the airline organizes a competition between leasing companies. The goal is to get the best financing offer. The airline says: “here is an agreement with the manufacturer for an aircraft at a good price, who will give me a loan for it at the lowest rate?” So, financial benefits are obtained through “double competition” (first - between manufacturers, then - leasing companies).
Typically leasebacks are done by large airlines and, most often, under financial leasing. Thus, she manages to “skim the cream” at the stage of “resale” of the aircraft to the leasing company. Theoretically, an airline can agree to an operating lease, but, as practice shows, financial leasing is more profitable for it.
As far as we know, in Russia, leaseback transactions for new aircraft were used by Aeroflot.
The most promising direction
It seems that in the foreseeable future the most rapid development in the Russian market will be operating leasing. There are several reasons for this. Firstly, the fall in world oil prices. Let us recall that in June 2008, a barrel of “black gold” was sold on the world market for 135 US dollars. This is a historical maximum, from which by December 2008 there was a drop to $43. Since then, oil has gone up and down in price. In September 2014, it again dropped below one hundred dollars and continued to fall, to $48 in January 2015. It turns out that world fuel prices have dropped by more than half in three to four months. And they are in no hurry to “crawl” upward.
How long will oil and, as a result, aviation kerosene be sold relatively cheaply? Historical analysis shows that there have been large fluctuations. Moreover, many of the forecasts given at different times did not come true in practice. Oil prices changed, as they say, “without warning.” Few people today dare to say how events will develop. Most often it is predicted that oil will most likely gradually rise in price, but will not be able to approach the historical maximum of the summer of 2008 for a long time. Conclusion: when making long-term calculations, you cannot rely on the current situation with hydrocarbon fuel prices.
In addition, the air transportation market is extremely sensitive to changes in the global economy or the economic indicators of a particular country. In conditions of economic instability, it is very difficult to predict the dynamics of growth/decline in passenger traffic, changes in demand for various types of transportation, and determine the type of aircraft most suitable for a given historical moment and a specific flight direction.
Operational leasing is good because it will allow you to do something on the aircraft market until the picture with the price of fuel becomes clearer. In conditions of uncertainty, airlines have more reasons to take on operating leases for relatively short periods of time. And quickly change them to more suitable ones when the situation becomes clearer both in terms of fuel pricing and the dynamics of demand in the air transportation market. In addition, in conditions of declining demand and falling solvency of citizens, it makes sense to be more attentive to cheaper aircraft from the secondary market.
In addition, there are considerations regarding the entry threshold. In comparison with financial leasing, which is well developed in Russia, the use of operational leasing lowers the investment threshold for those wishing to “play” in the aviation market. This statement applies to investors, leasing companies, and airlines. Options like “buy a fleet of Boeing 737-500s, finance some of them with your own funds, and take out the rest on credit at an understandable residual value” were again considered.
For leasing companies, the transition from financial leasing schemes to operating leasing brings both certain benefits and new challenges. It is believed that more opportunities to earn money open up for them. First, play on the residual value (albeit with a certain risk). Secondly, use payments collected from the operator for maintenance and repair. The lessor, after all, provides the airline with an aircraft for a period of time, and, accordingly, wants to create “savings” for future necessary forms of aircraft maintenance. Therefore, the airline is asked to make monthly payments for maintenance along with the rent. These deductions are not spent immediately, but only when there is a need for repairs or scheduled maintenance. Until such time arises, these funds are in the hands of the leasing company, and are somehow placed on the market by it.
When the contract ends and the airline returns the aircraft to the owner, an interesting moment comes. The parties begin to examine the actual condition of the aircraft and how it differs from the return requirements specified in the contract. Was the aircraft modified (according to the bulletins), were the units changed, was the equipment rearranged? When assessing the condition in which the aircraft is returned, there is a very delicate professional bargaining process. The result can be two options. Or the airline will pay extra if the plane is returned in worse condition. Or the leasing company will give the money to the airline if the plane is returned in better condition than expected.
Why has operational leasing developed poorly in Russia? Among the reasons is the problem of the owner withdrawing aircraft before the end of the contract period if such a need arises. But, most importantly, to engage in operational leasing, you must have a different mentality of the leasing company. You have to be proactive, ready to take a plane from one company and transfer it to another (remarketing). There must be a client network... A leasing company must be deeply immersed in aviation topics, be able to clearly understand what it buys, what equipment it operates? One of the important tasks is to learn how to predict the cost of an aircraft yourself. And to maintain this cost, which requires professional “monitoring” of the technical condition of a particular aircraft.
In Russia, many leasing structures, especially at large systemically important banks, until recently did not want to seriously deal with this topic. They considered it “not their business.” Why do all this, hire the appropriate specialists, have a headache with a technical audit, maintaining the technical condition of the aircraft, remarketing, when the market is already growing?! Working under a financial leasing scheme brought greater benefits with less labor input. And today, when there is a decline in passenger traffic, leasing companies have to deal with issues of early termination of lease agreements, seize aircraft from some airlines, assess their technical condition, carry out the necessary repairs and re-equipment before transferring them to other interested operators. The work of managers of leasing structures is becoming more difficult.
Among the difficult tasks that they will have to solve is the problem of adding domestic aircraft: these are the idle new Sukhoi Superjet 100 (according to various estimates, from 25 to 30 aircraft), and the operational Tu-204/214, and Il-96. Some of them were previously leased out under financial leasing, with the use of subsidies according to the Decree of the Government of the Russian Federation No. 1073. Unfortunately, subsidies today apply only to leasing (“financial lease”). There is information that it is proposed to extend them to transactions under the operating leasing scheme (“lease”). In this case, most likely, it will be necessary to introduce some restrictions, for example, excluding short-term transactions from consideration. In view of the fairly large number of idle unclaimed Superjet aircraft, as well as the growth in their production, in the context of a clearly insufficient order portfolio with clear sources of financing, such changes may come in handy.
Assessing the effectiveness of leasing taking into account the state of the financial market
With an annual ROI of 12-15% when operating aircraft, leasing, as a means of investing money, is one of the most profitable segments. Leasing commercial passenger aircraft, taking into account the use of the first and second cycles, is most suitable for investors and lenders due to more stable conditions, minimal risk and constant profit.
Meanwhile, cargo aircraft operations typically follow the second option, with an ROI of around 12%. Therefore, the assessment of the efficiency of aircraft operation should be carried out taking into account an understanding of the development trends of the aviation industry.
Leasing is a type of financial service, a form of lending for the acquisition of fixed assets by enterprises or very expensive goods by individuals.
The financial analysis
An accurate return on investment (ROI) calculation must be based on individual aircraft operating performance, size and type. And the cost of some aircraft models ranges from 48 million dollars (Boeing 737-800) to 210 million dollars (Airbus A380), as well as an annual ROI that ranges from 3% to 15%, respectively.
The average leverage ratio is in the range of 70% to 85%, which results in an investor cash outlay of up to $40 million for the Boeing 737-800, while the remainder must be repaid depending on the agreement between the parties. In some cases, the level of security for transactions drops to 50-65%, as investors seek to reduce investment risks by purchasing an aircraft that was previously in operation or buyers who have certain financial difficulties.
The residual value of the aircraft plays an important role in determining the transaction price. Taking into account data from specialized companies, the base cost of an airliner is reduced by approximately 4-9% per year. In addition, depreciation costs should be taken into account. Therefore, after 5 years of operation, the aircraft will cost about 70%, after 10 years - 50%, 15 years - 35%, ultimately after 25 years the residual value will be 10%. There will be a write-off of the residual value in full, with the possibility of raising money from the sale of spare parts when dismantling the aircraft.
When participating in leasing operations, it is necessary to constantly monitor the condition of aircraft, their technical condition and residual value. When the threshold of economic efficiency is reached, make an urgent decision on the further operation of the aircraft.
Changes in legislation
While the UN and the International Civil Aviation Organization (ICAO) support and promote the development of modern standards for regulating the operation of the air fleet. National and regional organizations continue to play an important role in establishing aircraft operating conditions. This applies, first of all, to commercial aircraft, their operation taking into account various legislative acts regulating the possibility of flights depending on the period of use of the aircraft. For example, China, India, Indonesia and Turkey have imposed restrictions on the import of commercial passenger and cargo aircraft with a service life of more than 10 and 15 years, while other developing countries allow aircraft with a service life of more than 15-20 years.
Another important factor to consider is the variety of support provided by the local aviation industry and government authorities. A typical example is the decision of the Russian government in March 2014 to cancel the import tax on certain aircraft models (Boeing 737, Airbus 320) for local carriers, which allowed them to reduce costs by 40% (about $1 billion). When carrying out regulation, one should take into account not only the current legislation, but also the geopolitical situation in different countries of the world. There are many factors influencing the development of the aviation industry. Appropriate implementation of regulatory measures in combination with national and regional regulations, as well as close cooperation with local authorities and aviation authorities, minimizes the impact of risks and ensures maximum operational efficiency.
Operator selection
Since the operator is the main component in the operation and maintenance of an aircraft, the investor must carefully select an operator, on whose work the efficiency of aircraft operation, servicing and repair depends. Once correct operation of the aircraft will allow you to save on unscheduled overhauls. Aircraft, when properly used and maintained after the end of the lease period, should have the highest possible residual value, allowing a new lease agreement to be concluded on favorable terms. Therefore, before signing a lease agreement, the investor must carefully assess the operator’s potential, financial and operational capabilities.
Most companies cannot afford the purchase of airplanes and helicopters - these are expensive aircraft equipment, the cost of which can reach millions of dollars. The optimal solution for most companies wishing to purchase this type of transport is leasing.
Definition
At its core, this is a long-term lease, which makes it possible to buy the leased item into ownership in the future. Aviation leasing often involves obtaining at your disposal not only equipment, but also additional infrastructure, equipment and equipment.
The lessee company has the opportunity to purchase a new or used aircraft/helicopter, as well as choose the make and model of aircraft.
Initially, the services of leasing companies were used only by air carriers that needed to expand or update their fleet of aircraft. Nowadays, aircraft leasing is also popular among companies wishing to purchase an aircraft for personal needs.
However, private individuals do not have the right to purchase aircraft through leasing.
Not all modern leasing companies engage in aircraft leasing. Those that specialize in this type of rental offer different conditions, and you need to study them before signing the contract. Pay attention to:
Amount of overpayment under the leasing agreement;
The maximum possible leasing period;
Advance - lower and upper limit;
Responsibilities for insurance and aircraft registration.
Features of the main leasing companies
This lessor has its own fleet of aircraft. The company offers to purchase new aircraft. Specialization: long-haul aircraft.
The company offers aircraft finance lease for a period of up to 120 months, with an initial payment of 30% of the cost of the leased item. The maximum funding amount is 500 million rubles. Specialization: small-sized aircraft.
Leader in the aviation segment of the Russian leasing market. Supplies equipment for the largest lessee companies.
The minimum advance amount is 10%, the maximum contract term is up to 120 months. The rise in price of the leased item will be from 5.4%. The company offers a wide selection of aircraft for business aviation, aircraft for agriculture and other needs.
Types of aircraft leasing
Aviation leasing is developing much more dynamically than other areas, because the cost of this equipment is high, and a small number of companies are able to buy it at their own expense. However, aircraft has its own characteristics of registration, registration, and regular maintenance, so aircraft leasing is divided into three types:
1. Operational
There are two types of operational leasing:
Dry - when an aircraft is rented without infrastructure, crew and maintenance. The equipment is used according to the certificate of the lessee company.
Wet - when air transport is rented along with personnel and maintenance. The rental period is from one month to 2 years.
Practice shows that after leasing, used aircraft are often sold on an installment plan.
2. Financial
It differs from the operational one in the complicated registration scheme and the long term of the leasing agreement. Financial aircraft leasing is cheaper, but the company that leased the aircraft/helicopter is responsible for the operation, maintenance and repair of the aircraft.
This is a form of long-term finance lease, so the lessee is more carefully checked for solvency. Finance leasing is often only available to the largest airlines with high credit ratings. If the contract is terminated early, the company will face serious penalties.
3. Returnable
This type of aircraft leasing is not as popular as the previous ones. This is a relatively new format that has not yet taken root in Russia. The bottom line is that the lessee company must independently negotiate with the aircraft manufacturer on favorable terms for the supply of aircraft.
After signing the contract, the company transfers the rights to the aircraft ordered from the manufacturer to a leasing company to obtain financing. At the same time, the lessee company undertakes to take on a long-term lease the ordered aircraft on previously agreed terms.
The advantage of return aircraft leasing is discounts from the manufacturer on aircraft and ordering equipment with the necessary parameters. This format is suitable for major air carriers that are satisfied with a long lease period.
Often in practice, lessees choose leasing companies on a competitive basis in order to obtain the most favorable leaseback conditions.
Advantages of purchasing aircraft on lease
Leasing makes it possible to quickly and on favorable terms obtain the necessary aircraft equipment for a long-term lease. In this case, you need to collect a relatively small package of documents and there is no need to worry about the residual value of the aircraft (plane/helicopter).
The advantages of leasing will be especially appreciated by new airlines that have not yet gained sufficient popularity. With the help of rented equipment, they can expand their geographic presence in the air transportation market. Operational aviation leasing allows air carriers to renew their fleet every 6-7 years, but financial leasing provides serious tax preferences.
Requirements for the lessee company
To lease a mainline aircraft, the lessee company must have an operator certificate and be financially stable.
Commercial aircraft can be purchased by medium-sized companies. But there are mandatory conditions - at least one year of activity and the presence of financial profit.
Requirements for aircraft
The most stringent requirements will be for operational leasing, while for financial leasing they are practically absent.
Key Requirements:
New condition or used
Type - airplane, helicopter
Age - up to 15 years
Compliance of the make and model of the aircraft with the type of activity of the lessee.
Peculiarities
The lessee will have to come to terms with the fact that CASCO aircraft insurance will be expensive. The aircraft will also have to be repaired when it is returned.
The total losses of Russian airlines for the first half of 2015 amounted to 28 billion rubles. Airlines' debts to lessors are growing, and this could lead to further problems for both parties.
Photo: Evgeny Biyatov/RIA Novosti
Airplanes are the main means of production for airlines. Since these are expensive assets worth many tens or even hundreds of millions of dollars, many airlines prefer or are forced not to acquire ownership of aircraft, but to lease them, financial or operational.
Financial leasing, with a number of reservations, is an installment sale, while during the leasing period the aircraft remains on the balance sheet of the leasing company, and upon completion it becomes the property of the carrier or is purchased at its residual value. Operating leasing, also with a number of reservations, is the lease of an aircraft; at the end of its term, the aircraft continues to remain, as it was, in the ownership of the leasing company.
A financial leasing agreement is usually concluded for 15 years, and an operational leasing agreement for five years. With operating leasing, an airline can reduce its costs by 15-20% because it does not buy the aircraft. In general, this is a more flexible tool that allows airlines to more quickly maneuver their capacity in the event of changes in the market.
And turbulent times have already arrived. Obvious problems for air carriers began a year ago. Previously, in 2012-2013, airlines hoped for demand growth of 12%, but at the end of 2014 they faced the problem of an oversupply of carrying capacity, and the almost two-fold depreciation of the ruble hit the economy of air travel painfully. The total losses of Russian airlines for the first half of 2015 tripled compared to the same period of the previous year and amounted to 28 billion rubles. According to the Russian Association of Air Transport Operators (AEVT), airlines' direct costs increased by 25% during this period, with fuel costs increasing by 17% and leasing payments by 45%. “Lease payments are huge. The operating lease can still be extended, but there is no point in spending money on buying the aircraft,” says the general director of a small airline engaged in regional transportation, who wished to remain anonymous.
In general, relations between air carriers and leasing companies have become more strained. In the spring, seeing the problems of carriers, many lessors agreed to restructure payments, that is, they allowed airlines to fly on credit in order to pay off the debt following the high summer season. However, there are serious suspicions that even during the usually most profitable third quarter, many carriers failed to turn a profit, and the fourth quarter will definitely be unprofitable. As a result, airlines' debts to lessors are increasing, and this may result in further problems.
Operational advantage
“Operating leasing is more common for typical assets, since, for example, a unique object is more difficult to lease, and then return and transfer to someone else. And for cars, railway rolling stock and aircraft, this is a completely normal situation, since each such asset is fully consistent with its type,” says Pavel Piskun, director of the international business development department at Sberbank Leasing.
In the case of aircraft, a certain role is played by the fact that they are operated according to strictly defined and strictly observed rules, the technical condition of the aircraft and all work on it are documented, so that the lessor always has a clear understanding of how his asset is operated, in what condition supported and what its residual value is.
As lessors admit, transactions are becoming more risky these days, and here it is necessary to emphasize the fundamental difference between financial and operational leasing. In the first case, the main risks are concentrated on the lessee. As many large Russian leasing companies said some time ago, “we work only with reliable clients,” but the experience of Transaero Airlines showed that they were mistaken.
Most transactions were concluded under the so-called leaseback scheme (SLB, Sale-Leaseback). In a typical SLB deal, the airline itself orders the aircraft from the manufacturer according to its needs, makes all the advance payments, but when the delivery date approaches, sells the ordered aircraft to the leasing company and leases them from it. The company is usually selected based on the results of a tender - who will offer lower leasing rates. In fact, the role of the leasing company in an SLB transaction is reduced to attracting the cheapest possible long-term loans; leverage in such transactions reaches 90-95%. It is not surprising that the subsidiaries of the largest Russian banks, which had good credit ratings and access to international financial markets, were able to make good progress in competition with foreign leasing companies.
SLB transactions are attractive when the market is stable; moreover, with large volumes of financing, they have a small margin for leasing companies. In this case, a fundamentally important criterion is the financial reliability of the lessee airline, because if the carrier turns out to be insolvent, cannot pay and returns the aircraft to the leasing company, it will have a serious problem finding a new customer, and at that time the aircraft will sit and bring huge losses. Although subsidiaries of leasing companies of Russian banks are accumulating experience in remarketing aircraft on the secondary market, they do not yet have enough of it. However, now, while solving problems with Transaero aircraft, they are gaining this experience at an accelerated pace.
Working under an operating leasing scheme transfers risks from the client’s solvency to the quality and liquidity of the asset, that is, the aircraft. This, of course, places increased demands on the level of competence of the leasing company - market and technical, in order to solve the problem of remarketing the aircraft as quickly as possible.
In Russia, this business model has traditionally been used by the leasing company Ilyushin Finance Co (IFK), which itself buys aircraft for subsequent placement on the market. IFC has a smaller volume of transactions compared to the largest leasing companies, since it works exclusively with aircraft equipment and is the largest in this leasing segment in Russia. The company has its own marketing and technical service specialists. Thanks to this approach, IFC can rely more on aircraft as financial assets, and not just on the reliability of airlines as payers.
"Wet" leasing
Typically, operating leasing refers to the so-called dry leasing - the airline leases an aircraft, but at the same time provides it with its own crew, maintenance and insurance. Another option, “wet” leasing, is still banned in Russia (this is a legacy of the early 1990s, when it was easier to ban than to regulate), but it has become widespread around the world. In this case, the airline leases the aircraft together with the crew; the lessor is also responsible for the technical condition of the aircraft and insurance. This is the most flexible type of leasing, allowing airlines to very quickly, within the season, increase carrying capacity or, conversely, temporarily get rid of excess.
The wet leasing scheme can be used to promote the new Russian regional aircraft Sukhoi Superjet 100 (SSJ 100) on world markets. Since this is a new product on the market, an interested foreign airline can take a few aircraft from the Russian airline Red Wings and try them out on its own route network. For Red Wings, the aircraft lessor will be IFC, which is promoting the SSJ 100 on the world market.
“Currently there are commercial negotiations on this topic with airlines from Cambodia and Laos, it is necessary to finally agree on the numbers,” says IFC General Director Alexander Rubtsov. — We also met with three or four companies from Iran who want to get the SSJ 100 on a “wet” lease. And if this country opens up for supplies, I think that we will definitely transfer several cars to Iran.”
Another promising area of IFC’s work on the global market is the leasing of the latest Canadian Bombardier CSeries CS300 regional aircraft. “The winner is the one who takes the new generation aircraft, because they provide a qualitative leap in their efficiency,” says Alexander Rubtsov.
During the Dubai Air Show in early November, IFC signed a letter of intent for the leasing of two CS300s, which will be delivered to the customer under financial leasing terms in the second half of 2016. The parties agreed to conclude a firm contract by December 1, 2015, but the name of the customer was not disclosed at the time the issue went to press.
So the changed realities are forcing IFC to develop new types of leasing, in particular “wet”, since this option is the most attractive marketing tool for carriers who can check whether they like the aircraft before ordering more of these machines. Quite a bold step considering that none of the Russian leasing companies have ever done this. But in difficult times we have to invent non-standard approaches.
The cost of airplanes and helicopters is very high. It can reach many tens or even hundreds of millions of dollars. Not all organizations can afford such purchases using their own funds. Most companies prefer to use the services of leasing companies.
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Concept
The word leasing can be translated as rent. Often this means the possibility of obtaining machinery or equipment for rent with or without the right to further purchase ownership.
Aviation equipment leasing often provides the opportunity to obtain not only the aircraft, but also the necessary infrastructure or equipment.
The lessee is offered the choice of purchasing a new or used aircraft or helicopter. At the same time, it is possible to get exactly the brand and model that the client needs.
Initially, only carriers that needed to expand or modernize their aircraft fleet resorted to aviation leasing services. Today, this option is also used by companies purchasing an airplane or helicopter for their own needs.
Important! Private individuals cannot purchase an airplane or helicopter on lease.
Where to apply
There are a huge number of leasing companies on the market, which are often associated with the largest Russian or foreign financial institutions. But not everyone is involved in leasing aircraft.
Each company offers its own conditions, which the client must carefully study before signing the contract.
Let's look at what features you should pay attention to when applying for aviation leasing:
- increase in price;
- maximum leasing period;
- minimum and maximum advance payment;
- responsibilities for aircraft insurance and registration.
We present in the table the features of popular companies offering aviation leasing.
| Company | Peculiarities |
| MKB-Leasing | Advance payment amount from 10%, term up to 10 years, price increase from 5.44% per year. They specialize in aircraft for small and business aviation, as well as various flying equipment for agriculture, oil and other households. needs |
| Sberbank Leasing | The company has its own aircraft fleet, and it is possible to purchase new aircraft on lease. They specialize in long-haul aircraft and helicopters. |
| VTB24 Leasing | The maximum amount is 500 million rubles, the term is 10 years, the minimum advance is 30% of the cost. Specialize in small aircraft and helicopters |
| VEB Leasing | The largest lessor in the Russian Federation in the aviation segment. They specialize in the supply of equipment for the largest operators. |
Types of aviation leasing
Aviation leasing is developing faster than other areas due to the high cost of aircraft and the impossibility of most companies purchasing equipment immediately.
At the same time, aviation leasing is significantly different from other types of this service due to the peculiarities of the design of equipment and its registration, as well as the need for expensive regular maintenance.
Let's look at the main types of aviation leasing:
- operational;
- financial;
- returnable
Video: Aviation Finance
Operational
The option when a company leases an aircraft for up to 10 years is the most common in Russia. Short terms are convenient for lessees when updating their fleet of aircraft and helicopters.
Most Russian carriers take aircraft on so-called “dry” leasing, i.e. rents it without crew and ground service. In this case, the aircraft is operated under the lessee's certificate.
Businesses often find it more convenient to use another special type of operational leasing – “wet”. In this case, the aircraft is transferred along with the crew and maintenance. This type of leasing typically ranges from 1 month to 2 years.
When operating leasing, much attention is paid to the selected aircraft or helicopter. Investors are interested in receiving liquid equipment as collateral with the possibility of re-renting at the end of the contract.
Often, upon reaching a certain age, aircraft are sold, sometimes with the possibility of obtaining installment payments.
Financial
A cheaper alternative to operating leasing is financial leasing. Its peculiarity is the long term of the agreement. In this case, the lessee carries out all current operations for the operation and maintenance of the aircraft.
Technically, financial leasing is much more complicated. In this case, the plane or helicopter is purchased directly for the client and the lessor usually does not challenge his choice.
With financial leasing, increased requirements are imposed on the solvency of the lessee, since it is, first of all, considered as a form of long-term lending.
Typically, only large airlines that have the ability to meet their debts can take out an aircraft on a financial lease. It is impossible to terminate such an agreement without paying heavy fines.
Returnable
The practice of leaseback appeared relatively recently and is not widespread in Russia. According to it, the company independently negotiates suitable delivery conditions with the aircraft manufacturer.
After signing the contract, the airline turns to the leasing company to transfer rights to the ordered aircraft and obtain financing. In return, the air carrier undertakes to lease the equipment on pre-agreed terms.
This practice is suitable mainly for large air carriers, which can thus receive significant discounts from the manufacturer, which are not available to most financial institutions, and receive the desired equipment with precise coordination of parameters.
Typically, leaseback is characterized by the features of financial leasing, i.e. long term and transfer of ownership at the end of the contract. Although operational leaseback is also possible in principle.
Large air carriers organize a leaseback competition between leasing companies. This allows you to get even more attractive conditions and gives the effect of double savings.
Benefits from purchasing aircraft on lease
Not all companies that need aviation equipment can afford to purchase it at their own expense. Loans for such amounts are also often unavailable due to the lack of a long-term positive credit history among young firms.
Thanks to leasing, you can get equipment quickly enough without searching for various types of security and with a fairly small set of documents. In addition, operational leasing allows lessees to not worry too much about the residual value of the aircraft.
Leasing options are especially convenient for air carriers that have appeared on the market relatively recently and have not managed to achieve sufficient fame. The service allows you to quickly expand your presence in the market and quickly respond to its needs.
With operational leasing, a company can easily change aircraft every 5-7 years, and with financial leasing, receive significant tax preferences and an optimal source of investment.
Requirements for the lessee
In most Russian companies, only professional air carriers can lease aircraft equipment. Although some companies are ready to lease small aircraft.
Depending on the type of aircraft, the requirements for the lessee change. If a mainline aircraft is purchased, it is available only to lessees with air operator certificates who have at least relative financial stability.
Commercial airplanes and helicopters are available to buyers even from medium-sized businesses. But a prerequisite will be that the company has been operating for more than 1 year and that it has made a profit.
Table. Requirements for the lessee.
Aircraft requirements
Each leasing company has certain requirements for aircraft. They become significantly more stringent in operating leasing and are virtually absent in financial leasing for large air carriers.
Table. Basic requirements for an aircraft
Peculiarities
A client who decides to purchase aircraft on lease will have to come to terms with some features characteristic of this type of transaction. First of all, this is expensive insurance under the CASCO program.
It is often additionally necessary to transfer contributions to the lessor's reserve fund and carry out actual major repairs of the aircraft in the event of its return.