54 Vol 23 Issue 8 2019 AVBUYERMAGAZINE http://www.AVBUYER.com
FINANCE AVBUYER.commore cost-friendly solution, some lessees may prefer to
utilize a pool of crew supplied by their management
company.”Aircraft Lease Tips & Suggestions
Operators should be aware of some of the pitfalls that
accompany leasing prior to deciding on a plan of action. To
begin with, a lease may have certain covenants, including
geographical restrictions and prohibiting commercial
operations if the primary use of the aircraft is for corporate
travel (Part 91), Bergeron notes.
Moreover, aircraft leases often have a maximum number
of permitted annual flight hours, with an additional per-hour
utilization fee, Larue adds. “That could become very costly –
as could an early termination of a lease.”
Regarding dry leases, Larue highlights the importance of
a pre-lease inspection, using an aircraft maintenance expert
to examine and correctly inspect the history of the aircraft
and maintenance schedule. “The goal is to ensure no major
checks or inspection items become due during the term of
the lease,” he clarifies. “Those events could result in a
lengthy downtime and a high cost for an idled, leased
asset.”
Finally, be mindful of any 'return conditions' terms in the
lease. “We highly recommend taking the time to analyze
this clause in a lease agreement and be sure that it makes
economic and financial sense to all parties involved,”
Larue stresses.Factors in Choosing to Lease
With the cautions detailed, Larue and Bergeron both stress
the many advantages that exist for those choosing to lease
an aircraft as opposed to an outright purchase. “In addition
to being less capital intensive, leasing an aircraft also shifts
the residual value of the aircraft to the lessor,” Larue notes.
“A lease becomes more attractive to a corporation than a
loan if the company does not need the tax write-off from the
depreciation,” Bergeron adds. “An aircraft in the US can be
written off by a company to zero value for tax purposes in
eight or fewer years. If during this term the company
expects significant profits, the tax depreciation of the aircraft
is one way to protect those profits.
“There are also some important accounting
considerations, such as an off-balance sheet treatment,
which may become very attractive to large corporations
needing to respect certain financial covenants.
“In any case, the user can still write off the lease
payments as an expense,” he concludes.
“The general rule of thumb is that a lease on a private jet
will make economic sense for an individual or a corporation
planning to fly less than 400 hours a year,” Larue
summarizes. “Surpassing this number, the lessee should
begin to consider an ownership structure given the adjusted
lease payments for high usage and forecasted
depreciation.”More information from http://www.echoleasing.com “A lease becomes more
attractive to a corporation
than a loan if the company
does not need the tax write-off
from the depreciation...”
About Echo Aviation Leasing Corporation
Echo Aviation Leasing Corporation is a finance and advisory firm in the aviation industry, co-founded by Canadian aviation
finance entrepreneurs Tony Bergeron and Frédéric Larue. With a global presence, Echo provides value-added strategies
and financing solutions to parties seeking knowledgeable advice.
Since 2005, Tony and Fred have funded over $3bn of aircraft transactions. The company’s specialized asset type falls
within Corporate Jets, Turboprop and Rotary aircraft. With a fully dedicated aircraft sales and acquisition team and with
offices in Montreal, Vancouver and Miami, Echo offers a true turnkey solution from the aircraft sourcing to the financing,
leasing and acquisition.Finance 2.qxp_Finance 16/07/2019 11:53 Page 3