Aircraft leasing: understanding dry leases and wet leases

Flying an aircraft without owning it

Buying a new airliner is a very heavy investment, and manufacturers' delivery lead times often stretch over several years. Many airlines therefore prefer to lease all or part of their fleet. They turn to specialist lessors, companies that buy aircraft, sometimes in large batches directly from the manufacturers, and then lease them to airlines around the world.

For an airline, leasing offers several benefits: preserving cash, gaining faster access to recent aircraft, adjusting the fleet to changes in demand, or transferring to the lessor part of the risk linked to the aircraft's future value.

The dry lease

In a dry lease, the airline leases the aircraft alone. It provides the crew, carries out maintenance under its own procedures and operates the aircraft under its own air operator certificate (AOC). According to the definition used by the UK Civil Aviation Authority (UK CAA), it is an agreement under which the aircraft is operated under the lessee's AOC.

This is the most common form for long contracts, which usually run for several years. The aircraft then wears the airline's livery, and passengers are usually unaware that it does not belong to the carrier.

When a foreign-registered aircraft is dry-leased, oversight responsibilities can be split between two authorities: that of the State of Registry and that of the State of the Operator. The UK CAA explains that in this case it becomes the State of the Operator, while the foreign authority remains the State of Registry.

The wet lease

In a wet lease, one airline leases an aircraft to another together with its crew, maintenance and insurance. This is also known as ACMI, for "Aircraft, Crew, Maintenance, Insurance". According to the European definition cited by the UK CAA, the aircraft is then operated under the lessor's AOC.

A variant, the "damp lease", includes the flight crew but not the cabin crew, who are provided by the lessee airline.

This type of contract is generally short. It allows an airline to cope with a seasonal peak, replace a grounded aircraft or test a new route without committing an aircraft for the long term. For passengers, the flight is sold under the name of the airline that marketed it, but the aircraft and crew may belong to another company.

A strict regulatory framework in Europe

In Europe, aircraft leasing is governed in particular by Regulation (EC) No 1008/2008 of 24 September 2008 on common rules for the operation of air services in the Community. Its Article 13 sets out the conditions for leasing, and the wet leasing of aircraft from third-country airlines is subject to prior approval and restrictive conditions.

On top of this come the European technical rules on air operations, which require in particular that the competent authority approve certain lease agreements. As the UK CAA points out, an airline that wet-leases an aircraft from another carrier remains accountable for safety and must oversee the lessor's operational standards within its safety management system.

Key takeaways

Leasing has become a central cog in the economics of air transport. It gives airlines flexibility, but it also creates dependencies: lease rates, aircraft return conditions and the availability of aircraft on the market. At a time when deliveries of new aircraft are constrained, lessors with a large fleet or orders already placed hold a particularly sought-after position.