Aircraft Leasing Terminology

ACMI - Aircraft, Crew, Maintenance & Insurance

Under this term, the LESSOR provides the aircraft, one or more complete crews (plus engineers) including their salaries and usually allowances, all maintenance for the aircraft and insurance, which usually includes hull and third party liability.

The LESSOR will charge for the block-hour and depending on the aircraft type sets a minimum guaranteed block-hours limit per month. Whether the airplane flies or just sits on the ground, the LESSEE must still pay the amount for the minimum guaranteed block-hours.

The LESSEE has to provide all fuel, landing/handling/parking/storage fees, crew HOTAC (Hotel, Transport and Accommodation) including meals and transportation as well as visa fees, import duties where applicable as well as local taxes. Furthermore, the LESSEE has to provide passenger/luggage and cargo insurance and in some cases need to cover the costs for War Risk. On top of that, the LESSEE has to pay the over flight/navigation charges. This point is a bit complicated. When flights are operating they use a flight number, which is issued to airlines by the ICAO (International Civil Aviation Organisation).

In order to cover the costs of air traffic control services, states over-flown will send a bill to the owner of the flight number, which can be readily identified by its code. The aircraft owner will probably have a code, but will not want to use it because he will end up paying the bills. Therefore, an ACMI lease requires that the LESSEE provide his own flight number, so that the bills can be directed to them. Thus, an ACMI lease can usually only take place between two ICAO member state airlines unless other arrangements have been made between LESSOR and LESSEE.

Wet Lease

This is basically similar to ACMI as explained above. The period can go from one month to usually one to two years. Everything less than one month can be considered as an ad-hoc charter.

Damp Lease

This is similar to the ACMI and Wet Leasing arrangement. However, the lease does not include cabin crew which must be provided by the LESSEE. This can only be done if the cabin crew receives SEP (Safety and Emergency Procedures) training by the LESSOR in order to be acquainted with the differences of the airplane.

Dry Lease

Dry Lease is the lease of the basic aircraft without insurances, crew, maintenance, etc. Usually, Dry Lease is utilized by leasing companies and banks and requires the LESSEE to put the aircraft on his own AOC and provide aircraft registration. A typical Dry Lease starts from two years onwards and bears certain conditions as far as depreciation, maintenance, insurances etc. are concerned. This depends on the geographical location, political circumstances, etc.

There are generally two types of Dry Lease; an Operating Lease and a Finance Lease.

Operating Lease: generally a lease term that is short compared to the economic life of the aircraft being leased. An operating lease is commonly used to acquire aircraft for a term of two to seven years. With an operating lease the aircraft does not appear on the Lessee's balance sheet.

Finance Lease: also known as a Capital Lease, it is defined when on of the following conditions are met:

1) At the end of the lease term the Lessee has the option to purchase the aircraft at an agreed price.

2) The lease payments are more than 90% of the market value of the aircraft.

3) The term of the lease is over 75% of the aircraft's usable life.

With a Finance Lease the aircraft appears on the Lessee's balance sheet, as it is viewed as a purchase.