Is it better 4 airlines to lease or buy?

upndsky

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I have heard that Southwest and UPS own their fleet of aircraft vs. lease them and that they'll even write a check for a new airplane. That's why they are in such a strong financial possition when other carrier are strugling.

But a friend not involved in aviation told me that this doesn't make much business sense, because for financing/tax purposes, it is better to lease.

I don't know much about acounting or economics, which is why I keep all my money in a shoe box under the matress, but it would seem to make more sense to own rather than lease stuff. That way you have liquidity plus if you park a plane due to slow traffic, you're not paying a leasing fee. Midway leased its fleet and they ran into trouble when traffic fell off.

I can see why an airline would initially lease an airplane (trial runs, not enough capital to buy it outright,...).

Perhaps someone with more knowledge in this area can shed more light on this subject, and verify or deny if what I've heard about SW and UPS is true.
 

aero99

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"I have heard that Southwest and UPS own their fleet of aircraft vs. lease them and that they'll even write a check for a new airplane. That's why they are in such a strong financial possition when other carrier are strugling. "

It's the other way around- they are in a strong financial position and they can buy them. The big guys (with big pockets) buy them because they can.

Owning them makes them assets which helps their financials look good. Leasing is just tossing money out the window- but for some operations is the most economical way of making their dollars stretch.
 

aero99

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"That way you have liquidity plus if you park a plane due to slow traffic, you're not paying a leasing fee. Midway leased its fleet and they ran into trouble when traffic fell off. "

Midway had bigger money problems than some leases. I would bet the cost of the leases combined were some of their smaller bills they couldn't pay. People and logistics are usually the most expensive part of operations for any company whether they have planes or taxi cabs.

Not comparing pilots to taxi drivers so be nice!
 

sdpilot

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The upfront costs of leasing are generally less than purchasing.
This extra cash can be used for daily operations, etc...

Monthly lease payments can generally be lower than purchase payments. (depends on down payment, etc...)

Sales tax is distributed over the life of the lease vs. lump sum for purchase.

So why purchase?

You own something at the end. (This adds value on the balance sheet)

If things get tight, you can always borrow against the equity on the aircraft.

You get to write off the depreciation.

Just a couple of pros and cons......
 

publisher

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lease or buy

Having been in the business of leasing transport aircraft, I assure you that for the most part, leasing is better than buying only for the lessor. Who says you do not have to pay for a parked lease aircraft.
You also have various types of leases, operating leases and finance leases. The second being more of a method of ownership that takes advantage of certain tax situations and often utilizes foreign advantages.
One of the less talked abuut problems in the industry has been the leasing of American airlines. Few carriers have the hidden reserve of paid for aircraft that are depreciated down but still have considerable value. In the old days, airlines would get themselves through tough periods by selling these aircraft or refinaincing them, etc. Today, airlines are strictly a cash flow operation for most. Everything leased, rented, borrowed. This is one reason they are so ill prepared other than maybe American and Delta to really survive a severe problem.
Actually only the American's and Delta's can really afford to lease. They can use operating leases and sale and lease backs to supplement what they are doing.
 
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