Sell and Leaseback: A Strategic Approach to Aircraft Financing

‍Exploring the Sell and Leaseback Option: A Strategic Approach to Aircraft Financing

In the complex world of corporate finance, businesses continually seek strategies to optimize their asset use and financial structures. For companies owning private aircraft, a sell and leaseback arrangement presents an enticing option. This financial strategy can enhance liquidity, offer tax advantages, and improve balance sheet management. Here’s an in-depth look at the benefits of opting for a sell and leaseback arrangement for your aircraft.

Unlocking Liquidity

One of the primary benefits of a sell and leaseback arrangement is the immediate capital infusion it provides. By selling the aircraft to a leasing company and then leasing it back, businesses can convert a significant capital asset into liquid cash without relinquishing operational use of the aircraft. This liquidity can be deployed strategically across the organization, whether for investment in growth opportunities, debt reduction, or bolstering working capital.

Enhancing Tax Efficiency

The structure of a sell and leaseback transaction can offer notable tax advantages. Lease payments are often fully deductible as business expenses, reducing taxable income. This differs from capital asset ownership, where depreciation schedules may not align as effectively with a company’s broader financial strategy. Moreover, structuring the arrangement through jurisdictions with favorable tax treaties or incentives can further enhance tax efficiency, tailoring solutions to meet specific corporate needs.

Off-Balance-Sheet Financing

For companies keen on improving their balance sheet metrics, sell and leaseback offers an intriguing off-balance-sheet financing option. By removing the asset from the balance sheet, companies can improve financial ratios such as return on assets (ROA) and debt-to-equity ratios, potentially enhancing credit ratings and investor perceptions. This streamlined balance sheet may result in better borrowing conditions and lower overall capital costs.

Maintaining Operational Control

Despite the change in ownership, a sell and leaseback allows the lessee to retain full operational control over the aircraft. Companies can continue using the aircraft as before, as lease agreements typically provide flexible terms customized to meet operational needs. This approach combines the best of both worlds: liquidity and asset control, without impacting operational capabilities.

Flexibility and Strategic Timing

Sell and leaseback arrangements are versatile, offering businesses the capability to respond strategically to changing market conditions or corporate strategies. Whether facing financial challenges or preparing for expansion, this option offers flexibility in managing assets. Companies can also take advantage of current market conditions to sell at optimal values, structuring lease agreements that align with future growth plans or financial projections.

Mitigating Technical and Depreciation Risks

Ownership of a private aircraft comes with inherent risks related to maintenance costs and depreciation. By shifting ownership through a sell and leaseback arrangement, companies transfer these risks to the lessor. This arrangement frees the lessee from concerns about the aircraft’s residual value fluctuations or unforeseen maintenance expenses, allowing more predictable budgeting and financial planning.