Economy, Domestic Economy

Plane Leasing: A Viable Option for Airlines

Plane Leasing: A Viable Option for AirlinesPlane Leasing: A Viable Option for Airlines

Iranian airlines are gearing up for a removal of sanctions over Iran’s nuclear program by yearend as part of July-14 nuclear deal between with world powers. Although sanctions-relief will prepare the ground for the airlines to renovate their worn-out fleet by acquisition of new planes, alternative methods of aircraft procurement such as leasing and rent-to-own systems are gaining popularity.

Airlines all over the world are turning to “operating” leases, in which they rent the planes for a few years at a time, with the leasing company bearing the risk of any slump in their second hand values. According to the Economist, over a third of the world’s airline fleet is now rented. As airplane prices go through the roof, leasing could be a useful option for tight-budget carriers in particular.

Depending on the method of procurement, airlines could pay the full price of aircraft in several installments and gain ownership of the plane or simply pay a renting fee, leaving the ownership to the lessor. On the other hand, the leasing party has the option to return the planes to lessor companies, which increases the airline’s flexibility in terms of keeping its fleet updated in accordance with demands and necessities.

These characteristics have made leasing and rent-to-own systems tempting for Iranian airlines as well, which on the one hand can’t afford to keep dilapidated planes in service and are in dire need of a fundamental fleet rejuvenation and on the other, face acute shortage of capital for purchasing new planes.

Although it takes some time before the new procurement methods are established in Iran, domestic airlines are paving the way.

Mahan Airlines is pioneering the movement. Secretary General of Association of Iranian Leasing Companies, Hamid Shirvani, says the association has held meetings with Mahan to broker aircraft leases for the airline in the near future.

Shirvani did not elaborate but experts believe once such moves gain momentum and win the approval of Iran Civil Aviation Organization, they will be widely adopted by many Iranian airlines as well.