Aircraft Leasing Explained: How Airlines Fly Billion-Dollar Jets Without Owning Them

Siddhesh Dubal
Sep 8
10 min read

An in-depth guide to aircraft leasing, cash flows, maintenance, risks, and why the system exists

TL;DR Airlines often lease aircraft rather than buy them outright. Leasing lets carriers avoid huge upfront cash outlays, preserve liquidity for operations or growth, and transfer certain risks (especially residual-value risk) to specialist lessors — at the cost of higher lifetime cash payments. The model is mature, accounts for the majority of the world fleet, and is supported by mechanisms such as maintenance reserves, insurance requirements, and written lease contracts [1] [2] [5].

This guide is structured for two audiences: the first sections use plain language for general readers, while later sections move into financial/accounting depth for aviation professionals and investors.

Key facts

Leasing accounts for the majority of the global commercial fleet — roughly 58% leased as of late 2023 [1].
Modern widebody list prices are typically in the $200–$350 million range (actual transaction prices vary by configuration and discounts) [2] [9].
Typical market lease-rate examples for modern widebodies are on the order of about US$1.0–1.15 million per month (model- and market-dependent) [2] [10][12][13][14].
Monthly rent largely services the lessor’s financing; airlines commonly pay maintenance reserves and arrange insurance, and day-to-day maintenance is typically performed by the airline or contracted MROs, with reserves used for heavy checks [5] [6] [11].
Sale-and-leaseback transactions are frequently used to unlock cash quickly and became especially prominent during supply/demand dislocations such as the post-COVID market [3] [7].

What is aircraft leasing — plain English

Aircraft leasing is renting a plane instead of buying it. There are a few common structures used across the industry: operating leases, finance (capital) leases, sale-and-leaseback, and a range of wet/dry/damp lease variants for short-term or crewed needs. The lessor is the owner (the landlord); the airline is the lessee (the tenant). The lease terms determine who pays for what, how maintenance is handled, and how residual-value risk is allocated [8] [2].

A natural question arises: why not just take a bank loan, buy the aircraft, and avoid leasing altogether? The problem is that aviation financing isn’t like a standard business loan. Aircraft require massive upfront capital, often hundreds of millions of dollars, and banks demand heavy collateral, higher interest rates, and strict repayment schedules. In contrast, leasing companies specialize in aviation risk — they understand aircraft valuation, depreciation, and remarketing. A loan ties an airline’s balance sheet to long-term debt and ownership risk, while a lease shifts those risks to the lessor and preserves liquidity. In practice, most airlines use a mix of both, but for smaller carriers or those expanding rapidly, leasing is often the only feasible entry point.

Despite the flexible operational reasons, leasing no longer delivers the old accounting advantage—under IFRS 16, lessees must recognize virtually all lease arrangements on the balance sheet as both a right-of-use asset and corresponding lease liability. This means leasing and financing show up similarly in balance-sheet metrics like leverage and gearing, putting them on equal accounting footing. [15]

Global regulators like ICAO and the FAA recognize these structures and set compliance frameworks to ensure consistency in how leases are treated worldwide [12] [13].

In short, leasing prioritizes flexibility and lower upfront cost, while buying (whether through cash or debt) prioritizes long-term asset control. Airlines choose based on balance sheet strategy, growth stage, and risk appetite.

Who actually buys planes, who pays for them, and why this market exists

Large specialist lessors buy aircraft from OEMs and lease to airlines. Lessors fund purchases through a mix of equity, bank loans and capital markets instruments; they then earn returns by leasing the asset (airplane).

Airlines benefit because they avoid locking billions in a single asset, preserving cash for fuel, payroll, route expansion or survival during downturns. Lessors benefit from scale, financing access, and residual-value management expertise — which is why leasing has grown into a dominant model in modern aviation [1] [2] [10] [4].

Beyond lessor whitepapers and bank-funded insights, there’s independent guidance too—ICAO’s manual offers global regulatory clarity, the FAA’s leasing guide lays out legal compliance for U.S. operators, and ICLG’s 2025 overview unpacks lease accounting, repossession law, and Cape Town Convention compliance.

Simplified cash-flow example

This is an illustrative example (not a contract exactitude) to make the math sensible:

· A new widebody list price might be roughly $250 million.

· Rather than pay that upfront, an airline might lease for about $1,000,000 per month.

A simplified split of that $1M could look like:

· Lessor services debt & financing: ~$600k (depends on how much the lessor borrowed).

· Maintenance reserve & insurance build-up: ~$100k (held/collected to pay heavy checks).

· Lessor margin (~$300k). Actual splits depend heavily on the lessor’s financing mix and the aircraft’s age and market conditions.

Note: exact splits vary by deal, aircraft age, the lessor’s financing cost, and market conditions; this is a conceptual breakdown to understand mechanics rather than a guaranteed ratio.

Refer [2] [5] [10].

Maintenance, insurance, and “who pays what”

Headline lease payments are usually aimed at servicing the lessor’s financing and earning a return. Operationally:

Monthly Rent - Airlines typically pay day-to-day maintenance and crew costs, or they contract third-party MROs to do so. Leases define maintenance standards and return conditions the lessee must meet [11].
Maintenance reserves / supplemental rent - Maintenance reserves are commonly paid into by the lessee; these funds are used to pay larger, predictable checks (C-checks, engine shop visits, LLP - replacements (life-limited parts — high-value engine parts with set lifespans)) when they arise. Reserves protect lessors from a lessee suddenly leaving with a heavy maintenance bill due [5] [6].
Insurance - Insurance is usually arranged per the lease: in many agreements the lessee bears hull and liability insurance; in bespoke structures the lessor may arrange cover and charge a premium. Contract language varies — always read the maintenance/insurance clauses closely [11] [6].

What risks does leasing shift or preserve?

Leasing is fundamentally an allocation of risk:

Residual-value risk → lessor. If the aircraft’s market value falls faster than expected, the lessor takes that hit (unless the lease contract has protective clauses).
Operational risk → lessee. The airline runs the operations, pays for operational maintenance, crewing, and insurance.
Liquidity risk → airline reduced. Leasing frees cash so airlines can fund fuel, payroll, route expansion, or simply survive shocks (COVID showed how critical liquidity is).
Market/delivery risk → mixed. Delivery delays or OEM production issues can change the economics dramatically — when new jet deliveries are tight, sale-and-leaseback prices and rents explode, creating winners and losers. [10] [3].

Why an airline pays “more” than the purchase price (and why that’s rational)

Because shipping your balance sheet and operational flexibility matters more than the raw buy-price for many carriers. Plainly:

Liquidity over ownership: Cash on hand can be used for immediate operational needs, growth, or survival. During downturns, having cash is worth far more than theoretical ownership.
Flexibility & fleet management: Leasing lets airlines adjust capacity faster, swap types, or return aircraft if a route dies. That flexibility is valuable, especially in volatile demand cycles.
Risk transfer: Resale/residual risk, and sometimes remarketing risk, sits with lessors who have scale and specialist skills.

So yes — on paper airlines may pay more over an aircraft’s life. But on the balance sheet and in survival scenarios, leasing can be the smarter play.

[4] [10].

Do aircraft depreciate the same way cars do?

No. Aircraft are engineered for 20–30+ years of service and residual demand (especially for well-maintained, popular models) often preserves value better than consumer cars. Depreciation depends on model demand, engine status, maintenance condition and macro supply/demand, but aircraft tend to lose value more slowly than cars [2] [4].

Types of Leases

Sale-and-leaseback in practice (cash today vs costs tomorrow)

Sale-and-leaseback converts a capital asset into immediate cash while keeping operational control. In tight markets, airlines have sometimes sold newly delivered jets at favorable prices and leased them back, generating liquidity — and sometimes accounting gains — while taking on ongoing higher lease costs. That tradeoff is strategic: immediate liquidity and balance-sheet improvement vs higher recurrent operating cost [3] [7].

Other lease types — brief overview

Operating lease: Lessor owns the aircraft; lessee uses it for a period and returns it at lease end. Residual risk usually rests with the lessor.
Finance (capital) lease: The lessee assumes risks and rewards of ownership and recognizes the asset/liability on the balance sheet — economically similar to a loan.
Sale-and-leaseback: The owner sells an aircraft to a lessor and leases it back; commonly used to unlock cash.
Wet lease (ACMI): The lessor provides Aircraft, Crew, Maintenance and Insurance — common for short-term capacity or entry to new markets.
Dry lease: The lessor provides only the aircraft; the lessee supplies crew, maintenance and insurance.
Damp lease: A middle ground — typically the lessor provides the aircraft and flight crew, while the lessee provides cabin crew (definitions can vary regionally).
Leveraged lease: The lessor finances the acquisition with non-recourse debt and multiple investors — a financing-heavy structure.
Synthetic lease and other hybrid structures: Accounting or tax-driven arrangements that seek to secure off-balance-sheet treatment for the lessee in some jurisdictions (structure specifics can vary and are dependent on local accounting rules).

Other lease types — detailed explanation and implications

Operating lease (detailed)
An operating lease is structured as true rental: the lessor retains ownership on paper and economically bears much of the residual-value risk. The lessee records lease payments as operating expense (accounting rules differ by jurisdiction and over time), and the lease term is typically shorter than the aircraft’s economic life. Operating leases are common when airlines prioritize flexibility and avoid balance-sheet asset recognition [8] [2].

Implications: Off-balance-sheet (historically, though modern accounting standards like IFRS 16 changed treatment), high flexibility, less long-term commitment, less residual-value exposure for the airline.
Finance (capital) lease (detailed)
A finance lease transfers substantially all risks and rewards of ownership to the lessee. Economically it is equivalent to buying with financing: the lessee often recognizes the asset and liability on the balance sheet (again, dependent on accounting standards). Finance leases are used when airlines want long-term ownership economics but prefer lender financing.

Implications: Asset and liability recognition, depreciation and interest expense on lessee books, less flexibility to return the aircraft without penalties.
Sale-and-leaseback (detailed)
A sale-and-leaseback is a negotiated simultaneous sale and lease. The airline sells its owned aircraft to a lessor and instantly leases it back. The benefit is immediate liquidity; the cost is ongoing rental. These transactions are common in tight capital markets or when airlines want to monetize assets while maintaining operations [3] [7].

Implications: Immediate cash injection, potential accounting gains/losses depending on sale price and book value, higher future operating expense.
Wet lease / ACMI (detailed)
Under a wet lease (also called ACMI: Aircraft, Crew, Maintenance, and Insurance), the lessor provides not only the aircraft but also the pilots, cabin crew, maintenance, and insurance. The airline essentially pays for block hours. This is common when an airline faces sudden capacity shortages or enters new markets without infrastructure.

Implications: Rapid capacity scaling, higher per-hour costs, less operational control for the lessee but lower crew-training and regulatory burden for short-term needs.
Dry lease (detailed)
A dry lease is the opposite — the lessor provides only the aircraft, and the airline must supply crew, maintenance, and insurance. This is the most common structure for established carriers.

Implications: Lower hourly cost than ACMI, but requires the lessee to have trained crew and MRO arrangements.
Damp lease (detailed)
A damp lease is between wet and dry: the lessor provides aircraft and flight crew and sometimes technical maintenance, while the lessee provides cabin services (or other service variants depending on the contract). It’s used when partial crew flexibility is needed.

Implications: Blends benefits of wet and dry leases; contract specifics determine commercial and regulatory treatment.
Leveraged lease (detailed)
A leveraged lease is a highly-financed structure where the lessor raises a large portion of purchase price via non-recourse debt and minimizes equity. Investors get tax benefits and cash-flow allocation; lessors scale fleets with lower equity. This structure is complex and depends on investor appetite and tax/accounting rules.

Implications: Efficient capital but complex covenants and investor return profiles; useful for larger lessors and institutional investors [10].
Synthetic leases and hybrids (detailed)
These are structured to meet particular accounting/tax objectives and can combine elements of finance and operating leases. Their treatment is jurisdiction-dependent and sensitive to accounting standard updates; only use with expert legal/accounting advice.

Implications: Potential off-balance-sheet treatment historically, but regulatory/standards changes reduced abuse; always consult accounting advisors [4].

What this means for investors, planners, and founders

Refer to [4] [10] [2].

For investors in airlines: don’t stop at headline debt. Under IFRS 16, leases show up on the balance sheet, but many analysts still under-adjust leverage. Always calculate lease-adjusted debt/EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent/Restructuring) when valuing airlines — otherwise you’ll underestimate financial risk.

· For investors in airlines: read lease footnotes closely; a low depreciation expense can be offset by higher lease costs. Don’t confuse ownership with free cash — a “lower depreciation expense” number may be replaced with higher lease spend. Scrutinize leases in footnotes.

· For airline CFOs: Leases are a tool — use them for strategic flexibility but model long-term cost. Lease when liquidity and flexibility are priorities, and use sale-and-leaseback selectively (don’t rely on it as recurring profit).

· For lessors: Scale matters — larger lessors have better access to capital, better remarketing channels, and can manage residual risk more effectively. Hence, scale, remarketing capability, and financing access are critical competitive advantages.

Tactical checklist — what to include in lease diligence

If you’re a founder building aviation products/finance offerings or a CFO evaluating leases, check [6] [5] [2]:

Lease type (operating vs finance) and accounting consequences.
Maintenance reserves schedule and who holds them.
Return conditions and redelivery acceptance criteria.
Lessor’s financing cost & covenants (how does the lessor fund the buy?).
Market comparables — lease rate factors (LRFs) (essentially the rent as a % of aircraft value) and recent sale-and-leaseback deals.

Conclusion — the practical truth

Leasing isn’t a trick — it’s a rational allocation of capital, risk and operational control between parties with different comparative advantages. Airlines buy time and flexibility; lessors buy scale and expertise in residual values. But leasing is not free. It increases ongoing operating cash requirements and creates dependency on capital markets. If you’re building or investing in aviation businesses, model leases explicitly, stress-test for shocks, and don’t romanticize ownership at the cost of liquidity.

References

[1] International Air Transport Association (IATA). (2024, April 12). Chart of the week: More aircraft are leased than owned by airlines globally. IATA. Retrieved from https://www.iata.org/en/iata-repository/publications/economic-reports/more-aircraft-are-leased-than-owned-by-airlines-globally/

[2] IBA Group. (2024, September). Aircraft values & lease rates: September 2024. IBA. Retrieved from https://www.iba.aero/resources/articles/aircraft-values-lease-rates-september-2024/

[3] Singh, R. K. (2024, May 31). Aircraft shortages turn into cash bonanza for some airlines. Reuters. Retrieved from https://www.reuters.com/business/aerospace-defense/aircraft-shortages-turn-into-cash-bonanza-some-airlines-2024-05-31/

[4] KPMG Ireland. (2024). Aviation Leaders Report 2024. KPMG. Retrieved from https://assets.kpmg.com/content/dam/kpmg/ie/pdf/2024/01/ie-aviation-report-2024.pdf

[5] Avitas, Inc. (n.d.). Maintenance reserves – the basics. Avitas. Retrieved from https://www.avitas.com/maintenance-reserves-basics/

[6] IALTA. (2022, November 7). Aircraft leasing & maintenance reserve funds. IALTA. Retrieved from https://ialta.aero/aircraft-leasing-maintenance-reserve-funds-2

[7] Reuters. (2025, January 7). Southwest Airlines enters sale/leaseback deal for 36 jets.

Reuters. Retrieved from https://www.reuters.com/business/aerospace-defense/southwest-airlines-enters-sale-leaseback-deal-36-jets-2025-01-07/

[8] Investopedia. (n.d.). Leaseback (or sale-leaseback): Definition, benefits, and examples. Investopedia. Retrieved from https://www.investopedia.com/terms/l/leaseback.asp

[9] Axon Aviation Group. (2024). Aircraft values. Retrieved from https://www.axonaviation.com/aircraft-values

[10] SMBC Aviation Capital. (2023). Financing aircraft acquisitions. SMBC Whitepaper. Retrieved from https://www.smbc.aero/insight

[11] SofemaOnline. (2023). Aircraft leasing and maintenance reserves explained. Retrieved from https://sofemaonline.com/blog/item/173-aircraft-leasing-and-maintenance-reserves-explained

[12] International Civil Aviation Organization. (2017). Manual on the regulation of international air transport (Doc 9626). ICAO. https://www.icao.int/sites/default/files/sp-files/sustainability/Documents/Doc9626_en.pdf

[13] Federal Aviation Administration. (2021, November). General aviation dry leasing guide. U.S. Department of Transportation, Federal Aviation Administration. https://www.faa.gov/sites/faa.gov/files/2021-11/GADryLeasingGuide.pdf

[14] International Comparative Legal Guides. (2025). Aviation finance & leasing 2025 – USA. ICLG. https://iclg.com/practice-areas/aviation-finance-and-leasing/usa

[15] International Accounting Standards Board (IASB). (2016). IFRS 16: Leases. Effective for annual periods beginning on or after January 1, 2019. https://www.ifrs.org/issued-standards/list-of-standards/ifrs-16-leases/