[citation needed] Commercial aircraft, such as those operated by airlines, use more sophisticated leases and debt financing schemes.
The three most common schemes for financing commercial aircraft are[citation needed] However, other ways to pay for the aircraft & flying equipment are:[2] These schemes are primarily distinguished by tax and accounting considerations, particularly tax-deductible depreciation, interest, operating costs which can reduce tax liability for the operator, lessor and financier.
Lessors could also increase their market share by including more start-up airlines, more older aircraft recycling, a change in views on residual values, and lower returns acceptance.
[5] On the other hand, prior to the advent of commercial aircraft leasing in the 1980s, privately owned airlines were highly vulnerable to market fluctuations due to their need to assume high levels of debt in order to purchase new equipment; leases offer additional flexibility in this area, and have made airlines increasingly less sensitive to cost and revenue fluctuations, although some sensitivity still exists.
Operating leases are generally short-term (less than 10 years in duration), making them attractive when aircraft are needed for a start-up venture, or for the tentative expansion of an established carrier.
The short duration of an operating lease also protects against aircraft obsolescence, an important consideration in many countries due to changing noise and environmental laws.
[7] Moreover, it provides the flexibility to the airlines so that they can manage fleet size and composition as closely as possible, expanding and contracting to match demand.
[8] The owner may require that the aircraft be returned in the same maintenance condition (e.g. post-C check) as it was delivered, so as to expedite turnaround to the next operator.
It involves a more complicated transaction in which a lessor, often a special purpose company (SPC) or partnership, purchases the aircraft through a combination of debt and equity financing, and then leases it to the operator.