17 Dec AVIATION LEASING CONTRACTS

It is frequently seen that most of the commercial aircraft fleet is registered in different territories of their owner’s place of residence, but as it happens with other commercial fields, like in the maritime industry, the owners try to get the legal, taxation and economic advantages of registering their aircrafts in a specific location in order to offer a more competitive service to customers. Aircraft registration on a specific registry represents being subject to the law of the country and the enjoyment of the benefits the place offers.

Most of the airlines do not hold the property of their planes, however they rent the planes for short periods of time from other specialist companies, or even for all its useful time, being them the only aircraft’s operators that would fly the plane and not having to afford the purchase, maintenance and management costs of the aircraft fleet. In commercial aviation, there are mainly two types of contracts that make this sector flexible and attractive to investors. Most of these legal tools are based in different leasing contracts.

The first one, known as operating leasing, is in which the lessor, as owner of the aircraft, grants possession of the plane to the lessee for specific time, in exchange of a rent, normally on a monthly basis. However depending on the economic circumstances of the moment and on the parties’ interests, it could be a fixed or a floating sum. If the object of the operating contract is the plane with its crew and the flight certificate is known as wet leasing contract, and if the aircraft is the only object of the contract then is known as dry leasing. In both scenarios the plane’s property remains with the lessor, but only in the wet leasing contract the aircraft is insured and controlled by the lessor. The dry leasing contract involves the lessee to be responsible of obtaining the flight certificate, insuring, maintaining and manning the plane, as well as to develop management tools to obtain the best commercial results of the aircraft. Therefore the airline would like to keep the plane for a longer period than with the wet leasing, in which the goal is to use the aircraft for a shorter time and avoid additional problems.

The second of the leasing agreements is known as finance leasing. The key element here involves the aircraft’s costs being totally financed, therefore the goal, at the end of the leasing contract, is to be the plane’s registered owner. It is normally arranged for a longer period of time than the operating leasing contracts so all the financial, management and commercial activity belong to the lessee’s airline.

Thorough tax planning and with the implementation of the adequate legal structure, in order to select the most suitable type of contract for each type of company, will result in different tax and accounting treatment of the business’s economic items. The company would be more flexible and would be able to offer better and more competitive services to customers and to increase the company’s operating range and economic performance.

José Andrés Lázaro Villanueva

Attorney