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Taking easyJet as an example, they have a fleet of over 200 A319's and A320's. At a price tag of around \$90m per plane, that equates to about \$18bn.

Given that their turnover for 2012/13 was around \$7bn, and their net profit was only \$660m, how exactly do they own so many planes? Are they financed long-term? Are they leased?

How are the deals structured for the big airlines when purchasing new planes?

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Recommend to have a look on their annual report and financial statements –  Him 30 mins ago

4 Answers 4

up vote 27 down vote accepted

The overwhelming majority of major airlines do lease at least some of their aircraft. And most airlines who choose to buy do not end up paying that full price tag.

In the case of Easyjet, around half their fleet is leased (as of 2013). Leasing allows airlines with weak balance sheets or with poor future prospects to increase capacity without locking capital.

In fact, the largest aircraft owners are aircraft leasing companies. For example, GECAS (General Electric Capital Aviation Services), the largest aircraft lessor, currently owns around 1,700 aircraft, being operated by 230 airlines around the world.

There are other (not state-owned and generally low cost) airlines, such as Ryanair, who are fond of owing most of their aircraft. What Ryanair does is negotiate very good procurement deals with Boeing (by buying large packs of planes, all being B-737s), use them for around 5 years, and then sell them before their price has gone down too low. This takes a burden on their debt levels, but seems to work for them so far on the long run.

This aircraft resell value is an important aspect to consider when comparing leasing vs purchasing, as well as tax incentives derived from amortization.

Legacy carriers (many of them state owned), on the other hand, have a tendency to purchase most of their fleet, and keeping them around for the full lifespan of the machine (around 30 years).

The actual price a company pays for a given aircraft is not public (understandably) and most figures you would be able to find are related to "list prices". However, in 2005 Ryanair was forced to disclose facts about one of the massive (by the time) purchases of Boeing aircraft. Apparently, they paid less than half of the public list price.

More current data on the actual price airlines pay for Boeing planes can be found here, where Javier Irastorza analyses the discounts Boeing is applying to their aircraft based on a balance sheet assessment.

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I seriously doubt ALL airlines lease all of part of their fleets. –  jwenting Mar 17 '14 at 12:04
    
Thanks for pointing that out, Certainly airlines using small Code A or B aircraft may not have access to the leasing market. –  molgar Mar 17 '14 at 12:26
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and not just that, same with many small government owned airlines in say Africa that use old aircraft purchased on the second hand market or old military transports (in fact in quite a few countries based on the Soviet model the national airline IS part of the country's air force, and is their transport arm, Aeroflot in the Soviet era was the like that). –  jwenting Mar 17 '14 at 14:19
    
Excellent answer, but 2nd to last paragraph seems to be missing part of a sentence - "This makes sens for them as they do not..." –  Dan Pichelman Mar 17 '14 at 15:03
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jwenting, I changed my response based on your comment, please read the first sentence. I'm now not referring to the totality. In any case, any documented examples you could provide would be most welcome. For example, Aeroflot, which I consider to be a major airline, as of today has most of its fleet leased from various lessors. –  molgar Mar 17 '14 at 15:32

Much of course depends on the companies involved, but there's several common schemes in place:

  • Lease
    Effectively like your lease car, you pay a fee per month or year over a contract period. At the end you either get a right to purchase the aircraft for a nominal price or it reverts to the lease company, or you extend the lease.
  • Purchase Outright
    Yes, you can pay cash. Especially older companies may have the cash reserves to pay for new aircraft out of pocket.
  • Bank Loans
    Either a bank or the manufacturer underwrites a loan with the aircraft as collateral. Pretty similar to a mortgage on your house
  • Trade in
    Like buying a new car, you might get a fair price for that old aircraft you had sitting around
  • Subsidies
    There's still a lot of national prestige involved in some countries with getting foreign airlines to fly your product. Some aircraft manufacturers as a result can deliver well under the list price to foreign airlines because such sales may be heavily subsidised by their governments.
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With an outright purchase, the cost of the plane would probably be spread over a number of years for accounting purposes. –  HorusKol Mar 26 '14 at 2:39
    
@HorusKol: As far as I understand accounting, the cost appears at once when the payment is deducted from the balance and added to property and then it's accounting cost is gradually reduced in the property account and deducted from expenses (this is called amortisation) –  Jan Hudec Mar 26 '14 at 13:00
    
@HorusKol: And it works the same way with about anything (including cars), just the term increases with lifespan and price of the item. –  Jan Hudec Mar 26 '14 at 13:02
    
@JanHudec probably - all I know is that the full $90 million cost of the plane won't be in the final profit/loss calculation for the year of purchase even if it is an outright purchase - I don't really know the exact accounting mechanism that lets companies do this. –  HorusKol Mar 26 '14 at 23:00
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@HorusKol: Yes. Well, the expense is not really a loss, because the company shelled out the money, but it got the property that has (initially) the same value. As it pays off in the following years, it is gradually amortized. The law even defines minimum time for amortization, because otherwise the company could deduct more, declare no net profit and pay no taxes. –  Jan Hudec Mar 27 '14 at 6:49

While scrolling through the prices of aircrafts which cost’s more than the GDP of many countries, it seems logical to take aircrafts on lease rather than see one’s balance sheets drooping health. Well, this might not be the only reason why many airlines pick leasing options.

By taking leased aircraft the airlines are able to maintain a fuel efficient and latest designs fleet, have better survival options at the time of geo – economic crises and traffic fluctuations. So this becomes a very company specific and situation specific decision.

Aircraft leasing market is a very capital intensive business with high risks and higher returns. Since last few years this market is expanding –with Asia- Pacific region fuelling this growth. Asia-Pacific region is becoming the hub of emerging economies -China, Hong Kong, Japan to name some. Among these China is moving fast and is growing its fleet at a humongous rate. Boeing projected in its 2014 annual report that China will buy about six thousand aircraft worth 870 billion U.S. dollars by 2033.

Multiple financing options, reduced lease and interest rates, bulk orders, growing Low Cost Carriers are all amplifying the growth of Global Aircraft Leasing Market

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Actually is pretty like a mortgage, u have the direct lending, operating leasing and capital leasing. The difference between these is that one is for when you want to (Direct Lending) purchase a private aircraft which enters the security interest. (Operating Leasing) for commercial aircraft and in a term below 10 years here already are companies involved and last (Capital Leasing) This is like operating leasing but is more like the name say's more financial.

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