When does leasing versus buying an aircraft make sense and why?
Leasing is generally preferred to ownership for those companies and individuals that cannot fully utilize the tax depreciation benefits of ownership or in instances where “Off Balance Sheet” treatment is desired for financial covenant or regulatory considerations. As the aircraft owner, GE Corporate is able to effectively utilize tax depreciation and pass those economic benefits to its Lessees. Lessees further benefit from the tax deductability of lease payments as current expenses. Also since the lease is usually off balance sheet, lessees’ financial statements benefit from favorable financial leverage ratios. Leasing additionally offers significant cash flow benefits versus leans due to GE Corporate’s assumption of the aircraft’s future value or residual risk, and hence market devaluation and technological obsolescence risk.
