Leasing of Aircraft

Leasing has proved to be an effective tool to attract funds to the real sector of Russian economy.
Vladimir Putin
President of the RF

Leasing of Aircraft:

• Leasing of Tu-214 - for passenger and cargo transportation.
  
• Leasing of An-38-120 - Antonov-38-120 light multipurpose aircraft is intended to transport 27 passengers, mail and freight on local airlines.

A deal begins with the wish of an airline to purchase aircraft on terms of leasing. It is very expensive to buy an aircraft at once. In this case the airline shall prepare an application: what aircraft is required, where and for which period is intended to lease it? Leasing company shall consider the application and arrange meeting with a seller (he also can be manufacturer and owner of the aircraft). During a trilateral meeting technical aspects of the aircraft and specifications underlying the leasing contract shall be agreed and approved. Afterwards, a trilateral agreement specifying the price of the aircraft, time of delivery and terms of repayment of the aircraft by the leasing company shall be signed. Later on, the parties shall proceed to the contract preparation, namely, the leasing company shall coordinate preliminary characteristics of the operation with its financial partner (bank, investor or any other financial partner). Then, the company shall request all documents evidencing the legality of the activities of the lessee and its financial situation. In co-operation with its financial partner and on the grounds of preliminary agreement the leasing company shall estimate amount of payments and time of the leasing period subject to the existing tax regulations and crediting rates. The leasing company upon presentation of its suggestions request the airline about business plan (operation conditions, cash flows) evidencing the availability of the leasing payment for the whole period of leasing. Subsequently, the airline in co-operation with the leasing company and its financial partner shall make an examination of the business plan reliability, objectivity and riskiness. During the examination the parties shall adjust leasing payments and time of the leasing period for the purpose of optimization and minimization of the possible risks of the airline related to the fulfillment of its engagements with respect to the leasing company. Later on, the parties shall approve the aircraft purchase contract to be signed by three parties (seller, leasing company, airline). Prior to the business plan approval the airline shall plead for it and the leasing company’s business plan at the meeting of the credit committee of a bank or financing institution. Upon financing decision making the parties shall proceed to the co-ordination of the credit agreements. Credit contract between the leasing company and its financial partner shall be prepared. At the same time, the leasing contract underlying credit agreement shall be drawn up. All documents (aircraft purchase and sale contract, credit agreement and leasing contract) must be signed at the same time following the decision making of the credit committee. Leasing contract is only initialized up to that moment.

Upon receipt of the credit facilities the leasing company shall pay for the aircraft subject to the approved schedule. Before obtaining the aircraft the airline shall advance payments stipulated in the contract. Then, the aircraft shall pass into ownership of the leasing company, GSGA (civil aviation service) requirements to be registered, if required. Subsequently, the aircraft shall be leased to the airline.



Features of aviation leasing:


Only airline (or an owner of an airline) can act as a leaseholder, otherwise it is impossible to obtain registration related to the flight safety. A leaseholder must be an aircraft operator.

Aircraft has several kinds of insurance: loss of damage insurance, liability to the third persons insurance (if aircraft falls down onto a building, it will be restored), the crew and passengers are insured as well.

It is the most expensive sort of leasing. Generally, the cost of one transaction amounts to dozens of million dollars.

Usually, leasing period is close to the hours of service (specified life) of the aircraft.



Technical features:


During the whole period of the leasing transaction only one party (leasing company or airline) shall carry out the maintenance, as it is required to replace some units and power plants within this time. By the way, the airplane (aircraft) can undergo several kinds of repairs within the leasing period.

At the time of repair and unit replacement the aircraft may be idle and airworthless. Leasing company and leaseholder must stipulate for the risks of financial deficiency before granting the aircraft on lease.

During its operating period the aircraft may be outside the lessor’s country. Additional insurance and lessor’s approval may be required.

In the event of default by the airline, the aircraft can’t be sold right away due to its high value.

Leasing payments are always based on the market rates in order to observe credit repayment terms (fulfillment of engagements with respect to the partner).

Leasing company may hold in reserve some airlines that could operate the aircraft.

Finance Leasing, PC is a Russian enterprise. It has the largest paid up capital stock amounting to 110 million US dollars among domestic leasing companies. At present, Finance Leasing, PC has successful experience of leasing tools implementation at the Russian enterprises.

Finance Leasing, PC provides for integrated execution of the projects in the scope of industrial equipment modernization subject to all required arrangements.

Executed projects:



• October 3, 2003 - FLC and Layang Layang Aerospace Sdn Bhd made a leasing contract for An-38-120 aircraft at LIMA-2003.
  
• June 26, 2000 - FLC and FSUE ”Dalavia” made a leasing contract for 2 aircrafts TU-214 (RA-64502 and RA-64503).. Aircraft operation started in 2001. Contract is valid up to 2009, including. Total amount of leasing payments - more than 60 000 000 USD.
  
• April 28, 2003 - FLC and FSUE KAPO named after S.P.Gorbunov made a purchase and sale contract for the aircraft TU-214 (RA-64507). Date of delivery - 2003.
  
• May 4, 2003 - FLC and FSUE KAPO named after S.P.Gorbunov made a purchase and sell contract for 4 aircrafts TU-214 (RA-64510, RA-64512, RA-64513 and RA-64515).Date of delivery - 2004.
  
  As of September 8, 2003 the construction of the aircrafts at FSUE KAPO named after S.P.Gorbunov has been financed to the following extent:
  
• May 29, 2003 - FLC and FSUE ”Dalavia” made a leasing contract for 3 aircrafts TU-214 (RA-64507, RA-64510 and RA-64512) under which FLC undertakes to grant them into lease within 2003-2004. Contract is valid up to 2019, including. Total amount of the contract is 200 000 000 USD.
  
• July 30, August 15, 2003 - FLC and Perm Engine Company (PMZ), JSC made a purchase and sale contract for 2 repaired engines PC-90A for the purpose of handing them over to FSUE KAPO named after S.P.Gorbunov for further installation on the aircrafts TU-214.
  
• August 19, 2003 - FLC and Perm Engine Company (PMZ), JSC made a delivery contract for 7 engines PC-90A ( taking into account above stated 2 units) for the purpose of handing them over to FSUE KAPO named after S.P.Gorbunov for further installation on the aircrafts TU-214.
  
• August 19, 2003 - FLC and NAPA named after V.P.Chkalov made a purchase and sale contract for 3 new aircraft An-38 for the purpose of leasing them to ”Carpathian International airlines”, Ltd. Estimated price of one aircraft - 5 000 000 USD.