Wet Lease vs Dry Leases – Everything You Need to KnowApril 11, 2020
A large portion of the business, personal, and commercial aircraft market uses lease financing. Unfortunately, some lessees are confused about the difference between a wet least and a dry lease. We’ll address the topic of wet lease vs dry lease by answering several questions:
- What is a wet lease?
- What is a dry lease?
- What is a damp lease?
Read on to learn about a wet lease vs a dry lease and how we provide aircraft financing solutions.
Wet Lease vs Dry Lease
Leasing an aircraft is an alternative to purchasing an aircraft. According to Boeing’s Current Aircraft Finance Market Outlook, leasing represents 40% of in-service commercial aviation ownership. When you lease an aircraft, you gain the right to use the aircraft for a specified period. You make monthly lease payments that you can immediately expense. When the lease ends, you return the aircraft to its owner, the lessor. Alternatively, you can purchase the aircraft at lease expiration.
Leases can be exclusive or non-exclusive. In other words, the lessor can share the same aircraft with multiple lessees during the same period. Thus, on a flight-by-flight basis, the lessor and lessee switch operational control.
Lessors, Benefits, and Regulations
Some of the top aircraft leasing companies include:
Leasing provides several advantages, including:
- Little to no down payment.
- Almost immediate availability of aircraft.
- Immediate expensing of lease payments.
- No depreciation.
- No need to dispose of the aircraft.
Generally, lessees operate under rules set down by Federal Aviation Regulations (FAR) Part 91, Part 121, or Part 135. Part 91 deals with non-commercial flights, whereas Part 135 air carrier certificates pertain to charters. Part 121 applies to commercial scheduled air carriers. A lessor may dry-lease an airplane to one company under Part 91 and another company under Part 135. These would be two non-exclusive dry leases. Part 135 holds aircraft, pilots, passengers, and operations to a higher standard than does Part 91.
What Is a Dry Lease?
With dry leases, legal ownership remains with the lessor while the lessee operates the aircraft using its own crew. Also with dry leases, the lessee is responsible for ground staff and other workers. Furthermore, the lessee must put the aircraft on its own air operator certificate. Typically, a dry lease runs two years or longer. Since the lessee provides the crew, it has complete control of the flying experience.
Sometimes, a regional airline can dry-lease a plane from a major airline. The regional airline controls flight crews, maintenance, and other operational tasks. Moreover, the regional may operate the aircraft under the major airline’s name. The lessee must contend with crew training, maintenance costs, union contracts, staffing at regional airports, etc.
Lessors may charge lessees on a monthly, daily, or hourly basis. Typically, the monthly lease rate is 1% of the aircraft’s value, with hourly rates based upon aircraft costs. Sham dry leases are illegal. These occur when the lessor provides or arranges pilots for the lessee. Doing so turns dry leases into wet leases.
Dry leases make sense when you already have your own crew. However, you’ll probably spend more in total for the crew, insurance, and maintenance needed with dry leases.
Video: What is a Dry Lease
What Is a Wet Lease?
With wet leases, the lessor provides the aircraft and the crew. Also, the lessor is responsible for insurance, maintenance, and the air operator certificate. Therefore, the lessor controls operations and the flight experience. The lessee doesn’t hire, insure, or manage the crew. The risk of wet leases is that inferior service or an older plane can make passengers unhappy.
Generally, you must have FAA commercial certification to obtain wet leases, except for certain exemptions under FAR 91.501. Normally, wet leases last from 2 to 24 months.
The lessee is responsible for fuel, airport fees, taxes, and duties. Typically, you see wet leases during the peak traffic months, heavy maintenance schedules, or when initiating new routes. Wet leases may allow you to fly into countries where you’re banned from operating. They also let you supplement service when your capacity is lagging.
You can save money by using wet leases instead of frequent charters. This points to the fact that a wet lease is more like a simple rental.
A damp lease is a hybrid of a wet lease and dry lease. The lessor provides the aircraft, maintenance, and flight crew. However, the lessee is responsible for the cabin crew. This choice lets the lessee directly control the flight experience.
Considerations for Multiple Leases on Same Aircraft
There are no regulations that limit the number of simultaneous, non-exclusive dry leases on the same aircraft. However, the FAA may be concerned about possible problems with this practice. Red flags include multiple leases among lessees who share pilots and know neither the other lessees nor the owner. The FAA may worry whether each lessee will maintain safe operational control during flights.
Therefore, the lessee must meet certain truth-in-leasing requirements. It must send a copy of the dry lease on a large aircraft to the FAA Aircraft Registry within 24 hours. Also, the lessee must notify its Flight Standards District Office before initial operation.
Before the lessee subleases an aircraft leased from a third party, it needs permission from the head lessor. With multiple lessees, insurance and tax consequences need careful coordination.
“The wet leasing of the Aircraft during the Lease Term (in which LESSEE and its crews retain operational control of the Aircraft) will not be considered a sublease of the Aircraft and will be permitted without LESSOR’s consent, provided that (a) the Aircraft remains registered in the State of Registration, (b) the Aircraft will be operated in accordance with applicable rules related to any Prohibited Country, (c) LESSEE provides LESSOR with either a certified copy of the applicable provisions from the wet lease agreement or an officer’s certificate indicating whether LESSEE or the wet lessee will be responsible for maintaining the primary passenger, baggage and cargo liability insurance relating to operation under the wet lease and (d) LESSEE complies with Article 18.9.”
“The parties intend that this Agreement shall constitute a “dry” operating lease. During each usage by Lessee, Lessee shall have possession, command, and operational control over the Aircraft, aircrew and maintenance; provided that during each reserved use by Lessor or other lessee of the Aircraft, Lessor or such other lessee, as applicable, shall have possession command and operational control of the Aircraft. “Operational control” shall mean, consistent with 14 C.F.R. § 1.1 and FAA guidelines, the exercise of authority over initiating, conducting, or terminating a flight. Lessee shall exercise complete control over the phases of operation of the Aircraft requiring aviation expertise for all flights under this Agreement.”
Video: How Wet Leased Aircraft Have Supported Norwegian Airlines
Which Lease Is Best for Me?
The choice of wet lease vs dry lease depends on your requirements.
If you want to have minimum operating responsibility over the aircraft, you will want a wet lease. You will be responsible for only fuel, airport fees, taxes, and duties. The lessor pays for almost all of the other costs including the aircraft, crews, insurance, and maintenance. Naturally, a wet lease requires higher monthly payments to reimburse the lessor for its costs. With a wet lease, the lessor controls the passenger experience.
If you already have a ground crew, or can hire one inexpensively, you might prefer a damp lease. It differs from a wet lease only in that you must provide the ground crew. Damp leases are more popular in Europe.
If you’d like more control over aircraft operation, you’ll choose a dry lease. With this type of lease, you get only the aircraft. Crews and other costs are your responsibility. This is a good choice if you already are set up for dry leases and need to add capacity.
How Assets America® Can Help
We help lessors purchase aircraft by providing loans of $10 million and greater. Our network of local/regional banks and private lenders can provide various financing plans faster than can large banks. For dry and damp lessees, we can provide the capital you need to establish your in-house support infrastructure. Please contact us for a private consultation before you waste time with slow and timid lenders.
Wet Lease vs Dry Lease FAQs
Why are some flights operated by another airline’s plane and crew?
This is an example of wet leasing. Frequently, smaller airlines use this arrangement to meet sudden or seasonal demand peaks. Wet leasing also helps when an aircraft experiences a last-minute problem and needs replacement.
What is a wet lease partner?
Lessors and lessees can be wet lease partners. They can sign an agreement in which the lessor supplies aircraft to lessees on a wet lease basis. Also, a lessor may lease the same aircraft to multiple wet lease partners who share use of the same aircraft.
How long is a dry lease generally?
Generally, dry leases run for two or more years. Of course, each contract is individual and may specify periods that are shorter than two years. Longer periods for dry leases make sense for lessees who have the necessary infrastructure.
Who maintains aircraft in a dry lease?
A dry lessee maintains the aircraft. It also provides the flight and ground crews as well as insurance. Lessees who do not want to maintain aircraft opt instead for a wet lease.
How does aircraft leasing work?
The lessor maintains ownership of the aircraft but allows the lessee to receive many benefits of ownership. Dry lessees get only the aircraft. Wet lessees also get the personnel necessary to operate and maintain the aircraft.