IATA Aircraft Lease Guidance
Guidance Material for aircraft leasing Guidance Material for aircraft leasing
Annex XI: DefinitionsAs most of the definitions are being described throughout this document, only a shortlist is provided in thisAnnex with a special focus on aircraft leases and the various forms of aircraft leases. By doing so the user ofthis document is able to understand the difference between aircraft leases from a financial perspective andput in a technical perspective.LeaseOperating LeaseCapital or Finance LeaseWet LeaseDry LeaseA legal document outlining the terms under which one party agrees to rentproperty from another party. A lease guarantees the Lessee (the renter) useof an asset and guarantees the Lessor (the property owner) regularpayments from the Lessee for a specified number of months or years. Boththe Lessee and the Lessor must uphold the terms of the contract for thelease to remain valid.A contract that allows for the use of an asset, but does not convey rights ofownership of the asset. An operating lease is not capitalized; it is accountedfor as a rental expense in what is known as “off balance sheet financing.”For the Lessor, the asset being leased is accounted for as an asset and isdepreciated as such. Operating leases have tax incentives and do not resultin assets or liabilities being recorded on the Lessee's balance sheet, whichcan improve the Lessee's financial ratios.A lease considered to have the economic characteristics of asset ownership.A capital lease would be considered a purchased asset for accountingpurposes. A lease falls into this category if any of the following requirementsare met: The life of the lease is 75% or greater of the assets useful life; Thelease contains a purchase agreement for less than market value; The Lesseegains ownership at the end of the lease period; The present value of leasepayments is greater than 90% of the asset’s market value.A lease where the Lessor provides an Aircraft with Crew, Maintenance andInsurance also known as ACMI. The aircraft is operated under the AOC ofthe LessorA lease where the Lessee provides crew, maintenance and insurance. Theaircraft is operated on the AOC of the Lessee.The accounting treatment of an aircraft lease depends on many parameters. We highly recommend that foryour own specific case you consult the appropriate accounting experts in your company and jurisdiction. Fordetailed definitions that can be used in contracts and financial accounting standards please consult theInternational Financial Reporting Standards 23 (IFRS) and the Financial Accounting Standards Board 24 (FASB).23www.ifrs.org24www.fasb.org4 th Edition 2017 132
AcknowledgementsIATA:Chris MarkouGeraldine CrosElentinus MargeirssonSGI:Joost GroenenboomRemko BruinsmaMarc Beechcroft-KayOthers:Thanos PascalisTiymor Kalimatoneworld Engineering & Maintenance Lease GroupAWGIATA would like to thank the airlines, leasing companies, manufacturers and industry experts who reviewedthis document, and provided valuable comments.4 th Edition 2017 133
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- Page 109 and 110: Annex V: Structural Repair File Gui
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Annex XI: Definitions
As most of the definitions are being described throughout this document, only a shortlist is provided in this
Annex with a special focus on aircraft leases and the various forms of aircraft leases. By doing so the user of
this document is able to understand the difference between aircraft leases from a financial perspective and
put in a technical perspective.
Lease
Operating Lease
Capital or Finance Lease
Wet Lease
Dry Lease
A legal document outlining the terms under which one party agrees to rent
property from another party. A lease guarantees the Lessee (the renter) use
of an asset and guarantees the Lessor (the property owner) regular
payments from the Lessee for a specified number of months or years. Both
the Lessee and the Lessor must uphold the terms of the contract for the
lease to remain valid.
A contract that allows for the use of an asset, but does not convey rights of
ownership of the asset. An operating lease is not capitalized; it is accounted
for as a rental expense in what is known as “off balance sheet financing.”
For the Lessor, the asset being leased is accounted for as an asset and is
depreciated as such. Operating leases have tax incentives and do not result
in assets or liabilities being recorded on the Lessee's balance sheet, which
can improve the Lessee's financial ratios.
A lease considered to have the economic characteristics of asset ownership.
A capital lease would be considered a purchased asset for accounting
purposes. A lease falls into this category if any of the following requirements
are met: The life of the lease is 75% or greater of the assets useful life; The
lease contains a purchase agreement for less than market value; The Lessee
gains ownership at the end of the lease period; The present value of lease
payments is greater than 90% of the asset’s market value.
A lease where the Lessor provides an Aircraft with Crew, Maintenance and
Insurance also known as ACMI. The aircraft is operated under the AOC of
the Lessor
A lease where the Lessee provides crew, maintenance and insurance. The
aircraft is operated on the AOC of the Lessee.
The accounting treatment of an aircraft lease depends on many parameters. We highly recommend that for
your own specific case you consult the appropriate accounting experts in your company and jurisdiction. For
detailed definitions that can be used in contracts and financial accounting standards please consult the
International Financial Reporting Standards 23 (IFRS) and the Financial Accounting Standards Board 24 (FASB).
23
www.ifrs.org
24
www.fasb.org
4 th Edition 2017 132
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