The term “aircraft leasing” implies the process where an airline leases an aircraft from a leasing company or another airline. It significantly lowers the financial pressure on an airline in purchasing a new aircraft. If the airline happens to be a start-up airline, it becomes highly beneficial because the leasing capital costs are relatively lower.
Dry, wet, and damp are the three common ways to do leasing. A dry lease involves the lessee operating the aircraft using its Air Operator Permit and usually has to do with all the services associated with the aircraft. When it comes to a wet lease, the lessor’s Air Operator Permit is used to operate the aircraft, and the lessor offers services including maintenance, cabin crew, etc. Though it’s quite similar to a wet lease, the lessor provides no cabin crew services in a damp lease.
The risks involved in leasing are completely financial. The lessor’s major risk is the financial position of the specific airline it leases the aircraft. In case the airline company becomes bankrupt, the lessor is at high risk to get back the aircraft in great operating condition. Currency fluctuations are another risk to the airline’s profitability since the aircraft leasing rates are usually fixed over a long period. Hedging is sometimes a solution to this.