A Pro-and-Con Breakdown of Buying vs. Leasing Private Aircraft
If your business has recognized the need for a private aircraft, the question becomes whether to buy or lease one. There are pros and cons to both, dictated primarily by your business’s access to capital and its attitude toward having an asset (or liability) of this magnitude on the balance sheet. Should you buy an aircraft or lease one? It depends!
The case for leasing
Did you know that more than a third of all aircraft operated by airlines are leased? In the past decade, there has actually been a rising trend in aircraft leases, as opposed to purchases. Even buyers who have the cash on hand to purchase a jet are choosing to lease. Why?
Leasing an aircraft has several clear benefits, chief among them affordability. Not only do you forgo the upfront cost of purchasing a jet outright, but the cost of ongoing ownership is also much lower. This means more cash on hand in the immediate, as well as over the long-term. Businesses can take the capital they may have spent on an aircraft and put it to work elsewhere, growing the business or paying down debt.
Speaking of debt, buying a jet outright automatically adds a burden to the balance sheet. Because aircraft depreciate so quickly, your aircraft will weigh down the wrong side of the books as a liability if you purchase outright. Leasing keeps it off of the balance sheet.
Another bonus to leasing? You’re not stuck with a jet you don’t want. Depending on whether you choose a capital or operating lease, it’s easy to walk away from a jet when the terms of your lease are up. No finding a buyer; no writing off depreciated costs.
Why to buy?
There’s a saying: “If it floats or flies, rent it.” This is in reference to the high cost of ownership that comes with boats and aircraft. However, what’s not represented in that quippy saying is the major convenience that comes in addition to this cost. Sure, you’ll spend more to maintain your aircraft, but you’ll also get maximum convenience from it.
The first and best reason to buy a jet is to turn it into a revenue stream. Hiring a jet management company and chartering your jet privately is a great way to make money for your business or recoup the cost of your jet. Because you financially own the aircraft, any money it makes flows directly into your books.
Owning a jet that makes money also means being able to list it as an asset on your balance sheet, not just a costly liability. Couple this with depreciation write-downs over time and you’ve got an asset that keeps getting more and more valuable to your operations! And if you’re ever in a tight spot and need the cash, there’s always a secondary sales market for well-maintained aircraft.
Which is right for you?
Do you have $3-90 million to put into a jet? How about a plan for turning your investment into a revenue stream? Is there any exit strategy for your jet if you no longer need or want it?
Observing your situation and understanding the pros and cons of both leasing and buying an aircraft can help level out the landscape for making your decision. It all depends on your financial stability, demand for private air travel, and time horizon for ownership.