Salmon TMS Gives Aviation Treasurers Essential Visibility
The aviation industry often uses leasing arrangements for its high-value assets. The financial complexity of these contracts requires the expert input of treasury to unravel them, but when spreadsheets are the only tool available, the task takes on new and unwelcome challenges. Conor Ward, Managing Director of MoyleRoe Corporate Services and aviation consultant to Salmon Software, has a solution.
Leasing is a vital tool for airlines when acquiring aircraft. Many will typically have a mix of owned and leased assets. Ownership is a good investment, but a new aircraft is a huge capital expenditure. List price for the European industry workhorse Airbus A320 family, for example, starts at around $101m.
By leasing rather than buying, airlines overcome the huge capital requirements of ownership, but more importantly they enable a faster response to market change, says Ward. That response time may be critical in meeting short-term capacity changes, or moving quickly into or out of certain routes. And it’s not just brand-new aircraft that are subject to leasing agreements: with planes having a typical ‘useful life’ of around 25 to 30 years, and a pre-owned example of the A320 going for an average of $25m, the used aircraft-leasing market is buoyant.
Aircraft leases typically range from three to 12 years, the tenor being steered by the airline’s strategy. In addition, leases tend to be acquired via aviation lessor or broker companies. New assets are often directly acquired from the manufacturer and then leased out to airlines. If an airline has bought an asset directly, a lessor may offer a sale-and-leaseback arrangement, in which it buys that asset from the airline and leases it back to it. Leases may be wet or dry, where dry means the aircraft and nothing else is provided, and wet includes the crew.