BOC AVIATION LIMITED GLOBAL OFFERING
May 2016
Industry Overview
1. Introduction to the Aircraft Operating Lease Industry
1.1. Background to Aircraft Operating Lease
1.1.1. What does an Aircraft Operating Lessor do?
In an aircraft operating lease, the risks and rewards of the aircraft ownership sit with the operating lessor and the risks and rewards of operation remain with the lessee or airline. In essence, the rights and obligations of each party in an aircraft operating lease are similar to any rental property contract. The lessee / airline operator pays the operating lessor for the benefit of operating the aircraft over an agreed fixed term in return for rental payments paid monthly in advance. At any time during the lease, the aircraft owner has the right to sell the aircraft with the lease attached to another owner. Throughout the lease term, the lessee is responsible for maintaining the aircraft in accordance with the lease requirements, but also local and internationally recognized aviation safety standards. To mitigate the financial risk associated with this maintenance work, the operating lessor may collect maintenance reserves, either in cash or other financial guarantee, which are returned to the lessee once the required maintenance work is complete. Like any rental contract, an aircraft operating lessor will additionally require the lessee to pay a security deposit in advance of the delivery of the aircraft. Aircraft owned by operating lessors are financed either on a secured (encumbered) or unsecured (unencumbered) basis. Aircraft and lease rental payments are denominated globally in US$.