Wet Lease Vs Dry Lease: What Are the Differences?

Are you ready to dive into the fascinating world of aircraft leasing? Whether you’re an aviation enthusiast, a business owner exploring aircraft options, or simply curious about the industry, understanding the nuances between wet lease Vs. dry lease aircraft is crucial. Buckle up as we embark on an illuminating journey, uncovering the key differences between these two leasing arrangements. From the skies above to the fine print on contracts, join us as we unravel the captivating tale of wet and dry lease aircraft arrangements!

According to Statista’s report, it is said that around 181 billion US dollars needed in funding by 2023 to accommodate new aircraft demand, the need to lease an aircraft is formed out of the desire to operate an aircraft without the financial burden of having to own it.

What Is Leasing?

Leasing in the aviation industry refers to the practice of renting an aircraft from a leasing company or a lessor, rather than purchasing it outright. It has become an increasingly popular option for airlines and other aviation operators due to its numerous advantages. However, aircraft leasing will eliminate the need to buy expensive airline assets, reducing the financial overhead.

In an aircraft leasing arrangement , the air lease corporation or a leasing company, or a lessor provides an aircraft to the lessee (the airline or operator) in exchange for regular lease payments. The lease agreement typically includes details such as the duration of the lease, payment terms, maintenance responsibilities, and other terms and conditions.

There are mainly two main types of aircraft leasing:

1. Operating Lease: This is the most common type of aircraft lease. It is typically shorter-term (usually a few years) and allows the lessee to use the aircraft without taking ownership. The lessor retains ownership and is responsible for major maintenance and repairs . At the end of the lease term, the lessee returns the aircraft to the lessor or may have the option to extend the lease or purchase the aircraft.
2. Finance Lease: Also known as a capital lease or lease-to-own, this type of lease is generally longer-term and aims to transfer ownership of the aircraft to the lessee. The lessee makes lease payments over the lease term and may have a purchase option at the end of the lease, usually at a predetermined price.

Aircraft leasing provides several advantages for operators. It allows them to access newer and more advanced aircraft without incurring the high upfront costs of purchasing . Additionally, leasing can provide tax benefits and offload maintenance and residual value risks to the lessor.

For lessors, aircraft leasing is a business opportunity to generate revenue by owning and leasing out aircraft. It involves assessing the creditworthiness of lessees , managing the leasing portfolio, and maintaining the aircraft to ensure their market value is preserved.

Why Is Leasing Aircraft Better?

Leasing in the aviation industry offers cost efficiency, fleet flexibility, and access to advanced technologies, and is a key driver of market growth. The global wet lease market for aircraft is expanding , showcasing the significance of leasing as a preferred option for airlines worldwide. People now prefer the leasing option instead of owning an aircraft.

Look here the benefits of using aircraft for lease in more detail here:

1) Cost Efficiency

• Leasing allows airlines to avoid the high upfront costs associated with purchasing aircraft. According to the International Air Transport Association (IATA), leasing can save airlines up to 20% in initial capital investment compared to buying new aircraft.
• The costs of aircraft maintenance, repairs, and insurance are often included in the lease agreement, reducing the financial burden and providing predictable monthly expenses.

2) Fleet Flexibility

• Leasing enables airlines to quickly adjust their fleet size and composition in response to changing market demands. They can add or remove aircraft from their fleet without the long-term commitment and administrative complexities associated with aircraft ownership.
• According to industry estimates, leased aircraft constitute over 40% of the global commercial aviation fleet, showcasing the significant role leasing plays in meeting airlines’ operational needs.

3) Technological Advancements

• The aircraft leasing market predicts that leased airlines can access the latest aircraft models and technologies without committing to long-term ownership. This flexibility enables operators to maintain a competitive edge by operating modern and fuel-efficient aircraft.
• As per the International Society of Transport Aircraft Trading (ISTAT), leasing companies own approximately 50% of the world’s commercial aircraft, highlighting their pivotal role in facilitating the adoption of advanced aviation technologies.

4) Regional Disparities

• Leasing is particularly prevalent in certain regions. For example, in Southeast Asia, more than 50% of the aircraft fleet is leased, while in North America and Europe, the leasing penetration rates are around 35% and 40%, respectively.
• These regional disparities highlight the varying degrees of reliance on leasing as a strategic approach to fleet management, influenced by factors such as regulatory environments, access to capital, and market dynamics.

Aircraft Dry Lease: What Is a Dry Lease in Aviation?

In aviation, a dry lease refers to “any leasing arrangement whereby an aircraft is leased to another party without any additional services or crew” provided by the lessor (the aircraft owner). In a dry lease, the lessee (the party leasing the aircraft) gains possession and control of the aircraft , but they are responsible for all the operational aspects, including flight crew, maintenance, insurance, fuel, and other operational expenses.

Benefits of Dry Lease

• Aircraft Ownership: In a dry lease, the lessor retains ownership of the aircraft while temporarily transferring possession and operational control to the lessee. The lessor is not involved in the day-to-day operations of the aircraft.
• Flexibility: A typical dry lease aircraft provides flexibility to the lessee in terms of aircraft utilization . They have the freedom to operate the aircraft according to their schedule, routes, and operational requirements, as long as they comply with aviation regulations.
• Operational Responsibility: The lessee is responsible for all operational aspects of the aircraft, including acquiring and managing the flight crew , maintenance, insurance, fuel, and other operating expenses. This private jet charter arrangement allows the lessee to have full control over the operations.
• Term and Conditions: The terms of a dry lease agreement are negotiated between the lessor and the lessee and typically include details such as the duration of the lease, payment terms, maintenance responsibilities , insurance requirements, and any limitations or restrictions on the lessee’s operations.
• Compliance with Regulations: The lessee must comply with all applicable aviation regulations, including safety standards, maintenance requirements , and licensing of flight crew, throughout the lease.
• Benefits for Lessors: Dry leasing allows aircraft owners to generate revenue from their aircraft while avoiding the complexities and costs associated with operating the aircraft themselves. It can be a viable option for lessors who do not have the expertise or resources to operate an aircraft or prefer to focus on aircraft ownership rather than day-to-day operations.
• Common Usage: Dry leases are frequently used in various aviation sectors, including commercial airlines, cargo operators, charter companies, and private jet operators. It provides an opportunity for businesses to expand their fleet, meet short-term aircraft capacity demands, or test new markets without the long-term commitment of aircraft ownership.

It’s important to note that a dry lease or a damp lease is different from a wet lease, which involves the lessor providing the aircraft with additional facilities like crew, maintenance, and other operational services.

Disadvantages of Dry Lease

• Higher Operational Burden: Dry leasing shifts a significant operational burden onto the lessee. They need to ensure the aircraft’s airworthiness, conduct maintenance and repairs , handle crew management, and obtain necessary permits and certifications. This increased responsibility can be challenging, time-consuming, and expensive for lessees, especially those who are not experienced in managing aviation operations.
• Maintenance Costs and Risks: Dry leasing often requires the lessee to bear full responsibility for the maintenance and repair costs of the leased asset. Aircraft maintenance and repairscan be costly, especially for older or heavily utilized aircraft. Without proper maintenance planning or warranty coverage, the lessee may face unexpected expenses and disruptions to their operations.

Aircraft Wet Lease: What Is a Wet Lease in Aviation?

Wet lease aircraft refers to a contractual arrangement in aviation where one airline (lessee) leases an aircraft, along with crew, maintenance, and insurance, from another airline (lessor). The lessor provides a fully operational aircraft , while the lessee utilizes it under their own branding and flight numbers. It offers flexibility, cost-efficiency, and fleet expansion opportunities.

Benefits of Wet Lease

• Flexibility: Wet leasing allows airlines to quickly acquire additional aircraft to meet fluctuating demand or to cover temporary disruptions in their fleet.
• Cost-efficiency: Wet leasing will allow the provisioning of an entire aircraft with crew and maintenance. So, airlines can avoid significant capital expenditures and overhead costs associated with aircraft ownership.
  
• Operational expertise: The lessor provides experienced crew members who are familiar with the leased aircraft, ensuring smooth exercises of operational control and adherence to safety standards.
• Fleet expansion:Wet-leased aircraft offers an opportunity for airlines to expand their fleet without committing to long-term aircraft acquisitions, allowing for strategic growth and route development.
  
• Time-saving: Wet leasing eliminates the need for airlines to go through the time-consuming process of acquiring new aircraft during peak traffic seasons, recruiting and training crew members, and obtaining necessary air carrier certificates.
• Risk mitigation: The lessor maintains operational control, insurance, and compliance with regulatory requirements, reducing the lessee’s financial risks.
  
• Market testing: Airlines can use wet leasing as a way to test new routes or markets without making long-term commitments, enabling them to assess feasibility before investing heavily.
  
• Seasonal demand management : Airlines facing seasonal fluctuations can lease additional aircraft during peak periods and return them when demand subsides, optimizing operational efficiency.
  

Entry into new markets: Wet leasing facilitates entry into new geographical regions or markets by providing the necessary infrastructure and operational support without significant upfront investment.

Disadvantages of Wet lease

• Limited fleet customization: The lessee has limited control over aircraft configuration and customization, as the leased aircraft may not be tailored to the specific needs and preferences of the lessee’s operations.
• Limited long-term planning: Wet leasing is typically a short-term solution, making it challenging for airlines to undertake long-term planning and fleet development strategies. It may not provide the stability and predictability required for sustained growth.
• Branding and customer perception: As the leased aircraft operates under the lessor’s branding, there is a potential risk of confusion among customers who may associate the aircraft with the lessor rather than the lessee. This can impact the lessee’s brand recognition and customer loyalty.

What Are the Differences Between Wet-Lease and Dry-Lease Aircrafts?

Wet lease vs dry lease are two distinct types of aircraft leasing arrangements. Here are the major differences between the two leasing types:

• Operational control: The lessor retains operational control over the aircraft and provides the crew, who operate the aircraft under the lessor’s regulations and branding.
• Responsibilities: The lessor is responsible for aircraft maintenance, insurance, and regulatory compliance.
• Flexibility: Wet leases offer flexibility as they can be used for short periods, allowing airlines to respond quickly to fluctuations in demand or cover temporary disruptions in their fleet.
• Cost structure: The cost of a wet lease typically includes the lease fee, crew salaries, maintenance, and insurance, making it a comprehensive package.
• Customization: The lessee has limited control over the aircraft’s configuration and customization, as it operates under the lessor’s standards.

• Operational control: The lessee has full operational control over the aircraft, including crew selection, maintenance, and regulatory compliance.
• Responsibilities: The lessee assumes responsibility for aircraft maintenance, insurance, and regulatory compliance.
• Duration: Dry leases are typically long-term leases, often spanning several years.
• Cost structure: The lease fee for a dry lease primarily covers the use of the aircraft, excluding crew, maintenance, and insurance costs. The lessee is responsible for these additional expenses.
• Customization: The lessee has greater control over the aircraft’s configuration and customization, allowing for more tailored operations and branding.

Overall, wet leases provide a turnkey solution where the lessor supplies the aircraft and crew, while in dry leases, the lessee assumes more responsibility and control over the leased aircraft’s operations. Instead of comparing wet lease vs. dry lease aircraft features, choose the one that best suits your needs and preferences.