Leasing Versus Buying a Private Jet
As drivers of BMWs, Mercedes, and other luxury cars know, sometimes leasing makes more sense than buying. As an aircraft broker dealing in private jet sales, our company has clients driving leased cars, and over the years several have asked about the advisability of leasing a private jet instead of buying one. The fact is that leasing a private jet for some clients can indeed provide advantages over purchasing one.. It can be especially advantageous to a buyer when they find a private jet on sale that makes an ideal short-term solution for their private jet travel needs. They can lease the jet for a couple of years, their reasoning goes, and then buy the private jet of their dreams later. But a recent potential lease situation our company was involved in recently highlights some of the issues in the “buy vs. lease” comparison.
The situation: A couple of months ago I had a request from the head of state of an African nation wanting to lease a Gulfstream G650, and we located an owner with an early delivery position willing to enter into a lease. (The G650, after all, isn’t even in service yet.) The proposed deal: The lessee (the party leasing the aircraft) wanted a two-year term and was willing to pay in advance – not in monthly payments, as most leases stipulate. The aircraft owner, who had financed the G650 purchase through his bank, went to his lenders to seal the deal, and of course our team was in touch with the lender as well. The upshot: The bank refused to approve the lease, regardless if the money was paid upfront or not. The bank was concerned that once the aircraft was in the service of the head of a foreign state, there would be no way to place a lien on the jet or recover it in the event of a dispute over the aircraft or lease agreement, or if the jet wasn’t returned at the end of the lease period.
My point is not that it may be difficult to lease a private jet if you’re the head of a foreign state. Instead, what was interesting to my team as we discussed the leases with the lenders who had financed the G650, was how concerned banks had become about the creditworthiness of lessees. We know banks have been much more diligent about checking the financials of private jet buyers since the meltdown of 2008, but lease agreements previously didn’t get the same high level of attention. After all, the jet could be recovered if the lessee got behind in lease payments, and the aircraft owner would still be responsible to the bank for the lease payments. That has now changed, and this is important because the primary advantage of leasing a private jet is that it typically costs less money per month than buying the same jet. (Of course, with a lease you walk-away and get nothing when the term is up; when buying you own the jet when the loan is paid off.) If your cash flow situation is such that you can afford to lease but not to buy, a bank that holds the note on the jet, or the financial advisor to the aircraft owner, might not approve of the lease deal in the first place. And for those who do have the financial wherewithal to either buy or lease, the extra paperwork and credit approvals required for a lease today might dowse negotiations before they get very far. In short, there are fewer leasing opportunities in the private jet market today, despite the number of creditworthy shoppers and the surfeit of used private jets for sale that might have an easier shot at being leased than purchased.
That said, in the interest of balanced discussion, let’s discuss some of the benefits of leasing beyond its relative costs. First, leasing eliminates concerns about residual aircraft value. Anyone who bought a private jet before the economic downturn in 2008 has likely seen the value of their investment drop substantially. With leasing, you walk away from the jet when your agreement is over with no concern about aircraft depreciation and current valuation.