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:
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.
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.
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.
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:
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:
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:
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:
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:
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.
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:
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:
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.