Aircraft Leasing in UAE

Operating Aircraft and upholding stability in the airline business is not an easy task as it requires steady maintenance of the profits against all the economic and financial challenges, along with other challenges like fluctuating fuel prices, often changing government regulations and advancing technology, among others, that one may encounter while running an airline business. Thus, the concept of aircraft leasing started to become popular in the aviation industry due to the various benefits that the aircraft operators can avail and beat the challenges they face in maintaining steady capital flow and profits. Even the most major and significant airlines, like Emirates, have been known to lease most of its A380 Aircraft and recently leased Boeing 777-300 ER. One of the main reasons airline companies are opting to lease Aircraft instead of purchasing is to reduce their financial burden and simultaneously increase their capacity. This article shall briefly lay down the laws regulating aircraft leasing in UAE. Leasing of Aircraft can be explained as the transfer of the Aircraft by the owner (lessor) to the lessee (user) but not the transfer of title. This means the ownership of the Aircraft remains with the lessor. Some of the common reasons that airline operators prefer to lease an aircraft instead of purchasing are:

• Increase or expand their capacity at a lower cost;
• To reduce the financial burden;
• An opportunity to lease a variety of Aircraft at a reasonable price to grow the business;
• Save capital for other purposes or investments;
• Manage the airline’s cash flow during demand shocks;
• Different kind of leasing options allows airline operators to overcome issues related to taxes;
• Helps in maintaining and improving the airline’s financial ratio; if the Aircraft is taken on operating lease, then it shall be considered as a rental expense and will be put on the off-balance-sheet; thereby, the balance sheet will not note down the assets or liabilities of Aircraft which is leased;
• Leasing also transfers the burden of the residual value of the Aircraft on to the lessor while disposing of such Aircraft, as over a period of time, the value of the Aircraft is likely to decrease;
• Reduces the maintenance cost of the Aircraft as compared to an owned aircraft.

 

Types of Aircraft Leases:

1. Damp Lease:

Under the damp lease, the airline can lease an aircraft along with the flight crew, maintenance, and insurance. As per the damp lease agreement, the lessee is required to provide the cabin crew by themselves. However, the lessor is bound to provide for a supervising cabin crew pursuer and give the lessee’s cabin crew Safety and Emergency Procedures training. 

 

2. Wet Lease:

Wet lease, also known as Aircraft, Crew, Maintenance, Insurance (ACMI). Under the wet-lease agreement, the lessor shall provide the lessee with Aircraft, Crew (cabin and flight crew, engineers), Maintenance, Insurance. Generally, this kind of lease happens between one airline company and another airline company or other such aircraft operators. Under the wet lease, the lessor will provide the ACMI. Still, the lessee is supposed to take care of the fuel, airport fees(landing/parking/storage), passenger, baggage and cargo liability insurance, crew’s hotel and accommodation, transportation, visa fees, import duties, taxes, during the period of the wet-lease agreement. Further, the lessee is required to get their own flight number for the bills. The wet-lease agreement operates on block hours, and irrespective of if the Aircraft has been used during the block hours or not, the amount is payable for the minimum fixed hours. 

 

3. Dry Lease: 

As the name suggests, the dry lease is an agreement whereby the lessor provides the lessee with only an aircraft, without flight crew, fuel, maintenance and ground staff, insurance. The lessee is also required to obtain the Air Operator’s Certificate (AOC) on their own and also register the leased Aircraft. The dry lease shall contain certain conditions with regard to the depreciation, maintenance, insurance based upon the existing political situations and geographical location of both the lessor and lessee. The dry lease is divided into two kinds of leases: operating lease and finance lease.

 

• Operating Lease: Under the operating lease, the lessee can register and operate the Aircraft without obtaining legal ownership of the Aircraft. This means the lessor shall be entitled to bear the risks or enjoy the benefits followed by the ownership of the leased Aircraft. The operating lease is entered into for a short period of time and such period is shorter than the life period of the Aircraft. Precisely, the Aircraft is taken on rent basis under this kind of lease. Therefore, it helps the lessee to put this expense in the off-balance sheet instead of recording the liabilities or assets of this Aircraft in the balance sheet.

 

• Finance Lease: A finance lease is also known as a capital lease. This kind of lease is made in such a manner that at the end of the lease period, the lessee obtains the ownership of the Aircraft. In this lease, the Aircraft is considered a purchase, and therefore, it shall reflect in the lessee’s company balance sheet. This lease is entered into based on the following conditions:
  • On the expiry of the lease period, the lessee has the option to purchase the Aircraft; 
  • The total lease payments will be more than ninety (90) percent of the total market value of the Aircraft; 
  • The Aircraft shall be utilized at least up to seventy-five (75) percent of the Aircraft’s life period. The airline companies shall opt for any of the above-stated aircraft leases based upon their requirements. Aircraft Leasing in the United Arab Emirates Federal Law Number 20 of 1991 Concerning the Civil Aviation Law (the Aviation Law), is the primary legislation in UAE, which governs all aviation-related matters. 

 

Further, Federal Law Number 4 of 1996, as amended by Federal Law Number 20 of 2001, on the General Organization of Civil Aviation (GCAA), lays down the required regulations to implement the provisions of the Aviation Law. The requirements and process of aircraft leasing in the UAE can be found in the Civil Regulations (CARs) as formulated by the GCAA. CAR Part IV, CAR-OPS 1, operation regulations of the Commercial and Private Air Transportation (AEROPLANES), the CAR-OPS 1.165, lays down the leasing regulations. Whereas part I of the CARs lays down a comprehensive list of definitions of aviation-related terminologies. 

 

As per the CAR-OPS 1.165 (a), the types of leases are defined as follows:

• Wet Lease: Here, the Aircraft is operated under the Air Operator’s Certificate (AOC) or the license of the lessor;

• Dry Lease: here, the Aircraft is operated under the AOC or the license of the lessee;

• Damp Lease: The Aircraft is operated under the AOC or under the lessor’s license, where the lessor provides pilots and the lessee provides cabin crew.

 

CAR-OPS 1.165 (b), Lays down the general requisites for leasing an aircraft in UAE as follows: 

Any aircraft operator with AOC or an applicant of AOC if intends to lease an aircraft, then they are required to provide the following details to the competent authority:

• The kind of Aircraft, model, and serial number of such Aircraft;
• The details like the name and address of the registered owner of the Aircraft;
• The place where the Aircraft is registered, nationality and registration marks;
• The registered owner of the Aircraft shall also provide a certificate of the airworthiness and also a statement, wherein the owner of the Aircraft declares that the Aircraft is in complete compliance with airworthiness requirements of the place where it is registered;
• Details and information like the name, address, a signature of the lessee, or of the person who shall exercise the operational control of the Aircraft as per the lease agreement. Further, a declaration shall also be made, stating that the lessee has a complete understanding of their responsibilities as per the regulations applicable;
• A photocopy or scanned copy of the lease agreement and a copy of the terms of the lease agreements;
• The time period of the lease;
• The place or area of the aircraft operation.

 

Thereupon, after thoroughly reviewing the provisions of the lease agreement submitted, the competent authorities shall determine that which of the parties to the lease agreement shall carry out the following responsibilities and should be held  liable for the conduct of the operations:

• The licensing and training of the flight crew members;
• The training of the cabin crew
• The performance and maintenance and the airworthiness of the Aircraft;
• Who shall assume the operational authority, which includes dispatch of the flights;
• Who shall decide and schedule the time of the flight or the cabin crew members;
• Consenting to the maintenance release.

 

CAR-OPS 1.165 (c) lays down the process of leasing of the Aircraft between a UAE operator and any entity as follows: 

 

Dry Lease – In:

In the UAE, operators can dry lease – in Aircraft from any entity only after obtaining prior approval from the competent authority. Further, all the conditions which are imposed along with the approval shall be mentioned in the lease agreement. The UAE operator is also required to make sure that the Aircraft which are dry leased- are in line with the requirements mentioned in the Subparts K, L, and/or CAR M. The competent authority should be duly notified of the requirements which are not in accordance with Subparts K, L, and/or CAR M and obtain approval from the competent authority of such non-complied requirements. 

 

Wet Lease – In: 

Just like the dry lease, the UAE operators are not allowed to wet-lease- in Aircraft from any entity without receiving prior approval from the competent authority. Further, the UAE operators are required to make sure that the following requirements are met for a wet lease- in:

• The lessor’s standards of safety pertaining to the operation and maintenance of the Aircraft is at par with the CAR provisions;
• The lessor shall be in hold of the AOC issued by any State which is a member to the Chicago Convention;
• The Aircraft shall have a certificate of airworthiness, which has been granted in line with annex 8 of the International Civil Aviation Organization (ICA0);
• Any other such requirements as imposed by the lessee’s authority shall be observed.

 

Dry lease – out: 

The UAE operator may dry-lease out an aircraft to any state operator who is a party to the Chicago Convention for any commercial or private air transportation, as long as the below-stated requisites are met:

• The Competent authority here has excluded the operator from the purview of the provisions of the CAR-OPS part I. Further, the foreign regulatory authority has given consent for the Aircraft to be monitored with regards to the maintenance and operation, post the removal of its AOC off the Aircraft;
• The Aircraft is maintained in line with the maintenance standards and program approved.

 

Wet lease – out: 

The UAE operator may lease the Aircraft along with the whole crew to any entity but still continues to carry out the functions and responsibilities as mentioned in Subpart C and shall remain as the operator of the Aircraft.

 

Damp lease – out: 

The status of the UAE operator under this lease shall be the same as the wet-lease out agreements. 

 

LEASING aircraft AT SHORT NOTICES:

In cases where the UAE operator, requires to lease an aircraft due to sudden or unforeseeable reasons, the prior approval from the authority shall be considered as given if the following conditions are met:

• If the lessor is an operator with the AOC granted by the state which is a member to the Chicago Convention;
• The period of lease-in is not more than five (5) consecutive days;
• The competent authority is informed of the application of this provision.

 

The authority shall give approval individually to UAE operators to lease Aircraft if the following general conditions are met, irrespective of the type of the lease:

• The lessor shall be an operator with an AOC issued by the state, which is an authorized signatory to the Convention on the International Civil Aviation; and
• Except with the consent of the lessee’s authority, the lessee shall be in charge of the operations of the lessor in order to ensure that the lessor observes the standards which are par with CAR provisions with regards to the training of the crew, maintenance of the Aircraft, certificates obtained as per the standards; and
• The routes taken to fly the Aircraft falls under the authorized areas of operations as mentioned in the AOC of the lessor; and
• The time period of the lease, the timing of the flight, and the time schedule of the duty and rest granted by the lessor are as per the limitations mentioned in the CAR-OPS.

 

Apart from the Aviation Law and the GCAA, the lessor and lessee rights are also regulated by the provisions of the Federal Law Number 5 of 1985 on the Civil Transactions (the Civil Code). As the Civil Code considers leasing as a contractual right.  Leasing aircraft has become the latest trend in the UAE due to the challenging economic conditions.