Aircraft operating leases—basic concepts
Produced in partnership with Norton Rose Fulbright
Aircraft operating leases—basic concepts

The following Banking & Finance guidance note Produced in partnership with Norton Rose Fulbright provides comprehensive and up to date legal information covering:

  • Aircraft operating leases—basic concepts
  • What is an ‘operating lease’?
  • How does an operating lease differ from a finance lease?
  • Sale and leaseback arrangements
  • The business of operating lessors
  • Term

Operating leases are often used in the airline industry. Aircraft have a long working life and, as such, a highly developed market place for marketing second hand aircraft has developed. This Practice Note explains what an operating lease is, how operating leases differ from other types of leases and the basic concepts involved in the business of operating lessors. See also Practice Notes:

  1. Aircraft operating leases—delivery condition, quiet enjoyment, rent and deposits and operational indemnities

  2. Aircraft operating leases—subleasing and events of default

  3. Redelivery conditions in aircraft operating leases, and

  4. Aircraft lease maintenance obligations

What is an ‘operating lease’?

A pure operating lease provides the lessee with the use of an aircraft for the prescribed term in consideration for payment of rent. At the expiry of the prescribed term, the lessee is obliged to return the aircraft to the lessor and has no further legal or economic interest in the residual value of that aircraft.

How does an operating lease differ from a finance lease?

The characterisation of a lease as a finance lease or an operating lease stems from applicable accounting practice. A finance lease is one in which the lessee takes substantially all of the risks and rewards associated with ownership of the aircraft. Finance leases are entered into as a means of financing the lessee’s eventual acquisition