End of Production for A320ceo Family

On principle, it's quite simple. Lessors make bulk orders, enjoying large discounts, and then offer the aircraft to airlines. As lessors often order at an early stage, the deal may include some attractive slots.

Taking an aircraft through a lessor may increase the cost for an airline, but there are good reasons why so many airlines lease at least some of their aircraft (the following applies to operational leases, not financial leases, which are another kettle of fish).

The first reason to lease instead of purchasing is that an airline may find it more easy to lease an aircraft than to borrow money to buy it, or may find the lease cost lower than the financial cost from a loan. The reason why this is true is that the lessor keeps property of the aircraft and can reclaim it more easily in case of default or bankruptcy. Another financial 'advantage' for an airline is that its balance sheet may look better when leasing because it carries less financial debt, though nowadays no bank or financial analyst would be fooled by the difference.

The second reason to lease may be to enjoy early delivery slots retained by the lessor. Of course, to get some of the best slots, the airline is likely to have to take a few others as part of a comprehensive deal.

The third reason is that an airline leasing a fleet is tied to the aircraft type or to the fleet size only for the duration of the lease. It's much more easy to return an aircraft to a lessor at the end of the lease than to sell it ! Many airlines use a combination of direct orders and leases as an efficient way of adjusting their fleet size to demand. Others use leases to roll over their aircraft and keep a young fleet, saving on maintenance.

The fourth reason is that the lessor, not the airline, carries the risk of a decline in resale value. Of course, the reverse is true, but transferring a risk is still an advantage.

A possible fifth reason often mentioned by lessors is that small airlines are at a disadvantage when negotiating with manufacturers, especially when applying for an amendment to a sales contract. Lessors claim they pay more attention to small customers and often show more  flexibility.

From the manufacturers' point of view, lessors may sometimes appear as competitors (for instance, too many early A339 orders from lessors now are a drag on new A339 sales), but they do offer financial solutions to airlines, and bear a financial risk (think of these two A350s delivered to a lessor in 2016 that have left TLS only a few weeks ago, or of the string of bankruptcies that we have seen this year).

Another important reason for manufacturers to deal with lessors is that they often cooperate to offer an attractive mix to win a large order for an aircraft in high demand.

To make it short and simple, lessors are facilitators. 

They are, however interested only in aircraft with a large market (mainly narrowbodies, but also leading widebodies like A330, 787 ...) and no specific features, making it easy to find a substitute lessee in case of default. That's why A380s are leased only through special purpose lessors using tax-booster financial schemes.

Thanks so much philidor 🙂

Scheduled to leave Hamburg today

A321 Vietjet VN-A661 delivery by Tobias Gudat, on Flickr

A321 Vietjet VN-A670 delivery by Tobias Gudat, on Flickr