leasing
TRANSCRIPT
LEASING AS A MODERN DAY INSTRUMENT OF FINANCING – WITH REFERENCE TO AIRCRAFT
Alaf K.MAmol SoniG Surya Druva TejJagan R.Mohd. Anees N.AMohnish AssudaneyVishesh Agrawal
INTRODUCTIONDefinition: A lease is a contract between
two parties called the lessor and the lessee whereby the lessor conveys to the lessee in return for rent the right to use an asset for an agreed period of time.
OTHER FACTSThe provisions of the Indian
Contract Act, 1872 apply to lease Contracts.
Council of ICAI issued Accounting Standard (AS) 19 for leases.
TYPES OF LEASING
LEASE
Operating Lease
Financial Lease
Sale & Lease buy-back
Leverage Lease
Short Term Lease
Long Term Lease
BENEFITS OF LEASING
1. Reduce total cost of ownership2. Refresh your technology3. Conserve capital 4. Finance 100% of your solution5. Advantage of tax regulation6. Balance sheet advantage7. Eliminate end of useful life hassles
DISADVANTAGES
1. Early Termination2. Insurance Cost3. Higher Credit Requirement4. Mileage limitation5. No ownership
AIRCRAFT LEASINGAircraft lease is a contract
between airlines (lessor) and aircraft operators (lesse).
Two main reasons for leasing a aircraft are;
To operate aircraft without the financial burden of buying them and
to provide temporary increase in capacity.
AIRCRAFT MANUFACTURER
LESSOR
LESSEE
Aircraft Sale
Leasing Company
Lease Payment
Right to Use
Airline Company
** Governments are often involved in the process of approving lease transactions.
TYPES OF AIRCRAFT LEASE
Aircraft lease
Wet Lease (ACMI, Damp
Lease)Dry Lease
Operating Lease
Finance Lease
WET LEASEA wet lease is a leasing arrangement
whereby one airline (lessor) provides an aircraft, complete crew, maintenance, and insurance (ACMI) to another airline (lessee) by hours operated.
DRY LEASEA dry lease is a leasing
arrangement whereby an aircraft financing entity, provides an aircraft without insurance, crew, ground staff, supporting equipment, maintenance, etc.1.Operating Lease.2.Finance Lease.
CROSS-BORDER LEASEA cross-border lease is a transaction
where the lessor, the lesse and other related parties are located in two or more different countries and potentially accounting regimes.
The reasons are:-1. More attractive lease condition in a foreign country as opposed to domestic capital markets.2. Tax savings is another benefit.
AIRCRAFT LEASING TIPS Choosing the right type of leaseAircraft considerationLeasing companies
ADVANTAGES
1. Control Versus Flexibility2. Tax Advantages3. Balance Sheet Advantages4. A common technique to
acquire an aircraft5. As part of full service lease,
most render maintenance management
DISADVANTAGES
1. A lease can place restrictions on the operations of the aircraft.
2. Early returns from a lease can be costly.
3. With a lease, you may loose tax advantages.
SAMPLE OF AIRCRAFT LEASING
PLANNING TO START A NEW AIRLINE?
Here are the steps An idea / dream / vision / niche
market Solid aviation business plan Experienced management team More than adequate funding Certification Aircraft selection Suppliers
KOREAN AIRCRAFT & ITS IRISH SUBSIDIARY
Korean Air Lines Co., Ltd. – Established in 1969.
Serving National flag carrier of Korea for 39 years – Passengers & Cargo.
Had service to 109 international and domestic cities around the world with more than 19000 Employees
As of January 2007 it was operating 122 aircraft on its fleet , of which 22 are cargo aircraft.
CONTD.. 1997 Asian Currency crisis – Relied on
international finance market particularly with export credit supported structure such as US EXIM bank due to lack of domestic financing
In 1997 Korean Aircraft limited established Financing subsidiary named Korean Air Lease & Finance company Limited at international financing services in center in Dublin.
LEASE – KAL & KALF
Lease between KIA &
KALF are categorized
in three types.
F-O type
O-O type
F-F type
Aircraft Manufacturer
Owner/Lessor
KALFSublessor
Korean AirLessee
LenderAircraft Sales Loans
Head Lease(Finance Lease or operating lease
Sublease (Finance Lease or operating Lease)
Guarantee in favor of lesser
CONCLUSION
Airline companies are relying on aircraft leasing due to large capital requirement. Especially when they are in financial distress, Leasing is an attractive way to secure the aircraft without having more debts on the balance sheet.
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