What Is a Wet Lease Contract

With an aggressive growth mandate, more aggressive and smaller market players have overpaid for many of their assets in the sale-leaseback market and are then undercharged on lease rates to gain the business, with lower maintenance reserves and yield conditions: rental rate factors have fallen to 0.6% per month (7.2% per year) and even reached 0.55% (6.6%) per year). [3] The global wet-lease market is expected to grow from $7.35 billion in 2019 to $10.9 billion in 2029, representing a CAGR of 4.1%. In general, you must have commercial certification from the FAA to obtain wet leases, with a few exceptions under FAR 91.501. Usually, wet leases last from 2 to 24 months. While these distinctions may seem simple, the meaning of “who has operational control,” as defined in 14 CFR 1.1, leaves room for interpretation. As the FAA explains, “Determining in any situation whether the landlord or tenant exercises operational control requires consideration of all relevant factors present in each situation. The terms of the lease itself are important, but as they may not reflect the true situation of 2/10/16 AC 91-37B 4, actual agreements and responsibilities need to be looked at very carefully. “Jet operating leases accounted for less than 2% of the fleet in 1976, then 15% in the early 1990s, 25% in 2000 and 40% in 2017, with lessors involved in 62% of mid-life used aircraft transactions since 2000: 42% in Europe and 29% in North America. [1] In 2015, more than $120 billion in commercial aircraft were delivered worldwide, and half of the world`s donors were based in Ireland. [2] It is important to understand the difference between wet leases and dry leases, as each situation has distinct obligations and regulatory requirements. Failure to comply with the legal requirements applicable to the chosen rental structure can cause problems for both the landlord and the tenant. In 2007, Beijing allowed Chinese banks to start leasing units, and nine Chinese lenders were among the top 50 in 2017, led by ICBC leasing in the top ten, with the value of their fleet under management increasing by 15 percent since 2016.

[5] In some cases, Chinese owners forgot that they had to enter into secondary leases and missed the time of redelivery by leaving the planes stranded for a few months. [6] A dry lessee maintains the aircraft. It also provides flight and ground staff, as well as insurance. Tenants who do not want to maintain the aircraft opt for a wet lease instead. 14 CfR 110.2 defines a “wet lease” as “any lease agreement in which a person agrees to provide an entire aircraft and at least one crew member”. (Don`t pay attention to any reference to fuel.) Generally, parties entering into wet leases are certified air carriers such as airlines operating under Part 121 of 14 CFR and charter operators operating operations under Part 135 of 14 CFR. However, paragraph 91.501(c) of 14 CFR provides for certain timeshare and exchange agreements in which the aircraft and crew are supplied together. And while these agreements are considered wet leases because they include both aircraft and crew members, these are 14 CFR Part 91 operations where the parties to the transactions don`t necessarily have to be air carriers. Landlords may charge tenants a monthly, daily or hourly fee. As a rule, the monthly rental rate is 1% of the value of the aircraft, with hourly rates based on the costs of the aircraft. Fictitious dry leases are illegal.

These occur when the landlord provides or organizes pilot projects for the tenant. In this way, dry leases become crewed leases. If you want to have minimal operational responsibility for the aircraft, you want a wet lease. You are only responsible for fuel, airport fees, taxes and duties. The rental company pays for almost all other costs, including the aircraft, crews, insurance and maintenance. Of course, a wet lease requires higher monthly payments to reimburse the landlord for their costs. With a wet lease, the landlord controls the passenger experience. It`s no secret that buying planes can be expensive, especially when airlines and charter companies buy more than one model to do business. The huge amount of money spent on buying planes can call into question a company`s cash flow. In the meantime, aircraft maintenance and support for an entire operations team can be huge actions that require effort and money. Instead of purchasing aircraft through one-time payments, many flight operators may choose to lease aircraft to other aircraft owners under a lease agreement.

This allows the lessor and tenant to focus more on their own business and have better control over their cash flow. We help leasing companies buy aircraft by providing loans of $10 million or more. Our network of local/regional banks and private lenders can provide various financing plans faster than large banks. For both dry and wet tenants, we can provide you with the capital you need to build your in-house support infrastructure. Please contact us for a private consultation before wasting time with slow and shy lenders. Therefore, the tenant must meet certain truth requirements in the lease. It must send a copy of the dry lease of a large aircraft to the FAA Aircraft Registry within 24 hours. In addition, the tenant must notify their district office of the flight standards prior to commissioning. In the case of wet leasing, the lessor provides the aircraft and crew. In addition, the lessor is responsible for insurance, maintenance and the air operator certificate.

Therefore, the rental company controls the operation and flight experience. The tenant does not hire, insure or manage the crew. The risk of wet-leasing is that poor service or an older aircraft can make passengers unhappy. They can also be considered a form of chartering when the lessor provides minimum operating services, including ACMI, and the lessee provides the rest of the services with the flight numbers. For all other forms of chartering, the lessor will indicate the flight numbers. .

David West
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