IATA Aircraft Lease Guidance

Pre-Delivery
The net lease is often structured with the rental fee provisions as absolute and unconditional, which ensures
that the payment of the rental fee is an absolute obligation. Therefore, no matter what, the Lessee will always
have to pay the rental fee, regardless of any breach of Lessor obligations.
The main elements to be considered when dealing with payment and security are the deposit, if applicable,
the rental payment, and the supplemental/additional rent (e.g. maintenance reserve payments) or end of
lease maintenance cost adjustment mechanism. These payment and security elements are considered in
further detail as follows:
2.5.1 Security Deposit
The security deposit functions as a protection for any non-payment under the lease agreement. While this is
typically targeting non-payment of the rent, the security deposit can also be used by the Lessor to offset other
non-payments (e.g. maintenance reserves, failure to meet delivery conditions etc.). Whilst the level of security
is a matter to be agreed between the Lessor and Lessee, and will be driven by Lessor’s credit assessment of
the Lessee, it is common market practice for the security deposit to be priced as a two to three times multiple
of the monthly basic rent.
However, the Lessee is advised to consider the level of the security deposit carefully in conjunction with any
other payments, such as the commitment fee (discussed in 2.5.2). A balance must be achieved, and it is
advisable that the Lessee should start from a basis of a total payment of up to three months of the rental fee,
and no commitment fee. However, the level of the security deposit is very much subject to a commercial
negotiation, as is who will be the beneficiary of interest accrued on such a security deposit (although this is
typically for the benefit of the Lessor).
The security deposit is usually paid by the Lessee in staggered payments. A portion of the security deposit is
paid within a few days of execution of the LOI, with the rest becoming due on signature of the execution
document or lease agreement.
2.5.2 Commitment Fee
The commitment fee is paid by the Lessee as a consideration for the Lessor to take the aircraft off the market.
In certain jurisdictions any security deposit may be characterized as the property of the Lessee and subject to
potential claw back in the event of Lessee bankruptcy, undermining the primary purpose of the security
deposit. In an effort to address this risk, Lessors will generally seek to characterize the security deposit as the
absolute property of Lessor, and in some leases will re-name the deposit as a “commitment fee” or another
form of supplemental rent.
It is important for the Lessee to ensure that it is comfortable with the lease provisions relating to the return of
the security deposit (or commitment fee) following lease expiry. Some leases will provide for the return of the
deposit upon satisfaction of all Lessee obligations, which could include actual and contingent obligations.
This can be problematic where continuing indemnity and insurance obligations might mean that release of
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