There is an unprecedented level of interest in business aviation. Thankfully, there are a range of options business aviation users can choose from to access an aircraft. Each conveys its own intrinsic benefits and drawbacks, and may be more or less attractive to the user based on their unique situation. Mindfully weighing these options – from charter, to fractional ownership, to operating leases, to traditional financing – is a crucially important process, especially since your choice can have far-reaching implications for your balance sheet.
There are many strategic advantages to an operating lease that you should consider when making this choice. Here are the top 5 advantages that this frequently misunderstood financing product offers individuals and organizations:
Yes, operating leases are contractual arrangements. The right lessor, however, can structure a lease that can adjust to changes in your mission.Depending on your needs, a lease can permit extensions, provide an early termination opportunity, or facilitate a move into a larger or smaller aircraft. In this framework, it’s easy to pivot to suit your unique situation.
A lack of agility is where the risk of traditional ownership far exceeds any perceived limitations of a operating lease. Business aircraft are meant to be a boon to operations, but changes to your mission can turn a previously useful asset into a major liability. For example, if you experience an uptick in international business, but have recently purchased a midrange aircraft that can’t make the trip to your new clients, your capital will be tied up in an asset that no longer supports your business goals.
Flexibility without sacrifice
Operating leases provide you with exclusive access to your aircraft for the duration of the lease. This means consistently using your crew, leaving your personal effects on board, and enjoying the many other benefits of ownership while preserving liquidity. You may face restrictions on alterations to the aircraft that could potentially impact residual value, as well as other usual lease terms, but these limitations fall within normal patterns of ownership. A knowledgeable lessor can offer flexible terms that suit your needs without stifling your choices.
The predictable term of an operating lease provides you with more flexibility than traditional ownership. When the lease ends, you simply turn the aircraft back over to the lessor—no additional planning or contingencies needed. In contrast, going through the process to sell an aircraft when it’s time to upgrade or make changes to your operations is anything but predictable. From hiring a broker, to waiting for months (or even years, in extreme cases) to find a buyer, to paying the costs of maintenance, insurance, and storage in the meantime, you may be looking at lost time—and millions in unbudgeted expenses.
Coverage for a surprisingly wide range of aircraft
You may think that traditional financing confers the best coverage for your choice of aircraft, but that’s not always true. The right operating lease provider has experience with a broad variety of manufacturers and models, putting few limits on your selection of aircraft. Whether you are looking for a new or pre-owned aircraft, operating leases can accommodate either route you choose to take. In fact, at times, operating leases may open more possibilities for you than traditional aircraft financing.
Specialists in business aviation financing like Global Jet Capital look to spread risk across a large portfolio, encompassing aircraft from every major manufacturer, global market, and a variety of age ranges.
Versatility in both low- and high-interest rate environments
In a low interest rate environment or hot resale market, you may ask yourself “Why choose an operating lease?” The first reason is simple: current conditions are no guaranty of future conditions. A strong resale market may or may not be around when you choose to sell. The low interest rate environment may be transient as well, which may reduce demand for your pre-owned aircraft from the buyers of tomorrow. In the meantime, you will have paid more for a depreciating asset.
The second reason is applicable regardless of interest rates: large down payments are part and parcel of traditional financing. That substantial capital outlay may not prove to be such a good investment, after giving effect to a volatile geo-political situation, emerging technology, and the unavoidable risk of market fluctuation.
These risks are eliminated when you choose an operating lease. You do not have any risk relating to the spot market value of the aircraft at the end of the lease and costs remain predictable for the duration of the lease.
Privacy and anonymity during travel
When you’re the registered owner of an aircraft, the FAA will identify you in public records during normal flight operations. An operating lease reduces visibility to the aircraft’s end user, since the owner of the aircraft is the lessor—not you or your organization. This translates to a higher level of anonymity with no extra effort required.
Interested in learning more about the flexible financing options available for business aircraft? Connect with one of our business aviation experts.