Japanese leveraged lease: A JLL requires the establishment of a special purpose company to acquire the aircraft, and at least 20% of the equity in the company must be held by Japanese nationals. Widebody aircraft are leased for 12 years, while narrowbody aircraft are leased for 10 years. Under a JLL, the airline receives tax deductions in its home country, and the Japanese investors are exempt from taxation on their investment. JLLs were encouraged in the early 1990s as a form of re-exporting currency generated by Japan's trade surplus
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Because the cost of a high-end modern private aircraft may be tens of millions of dollars, lending for aircraft purchases is accompanied by a security interest in the aircraft, so that the aircraft may be repossessed in event of nonpayment. It is generally very difficult for borrowers to obtain affordable private unsecured financing of an aircraft purchase, unless the borrower is deemed particularly creditworthy (e.g. an established carrier with high equity and a steady cash flow).
Extendible operating lease: Although an EOL resembles a finance lease, the lessee generally has the option to terminate the lease at specified points (e.g. every three years); thus, the lease can also be conceptualized as an operating lease. Whether EOLs qualify as operating leases depends on the timing of the termination right and the accounting rules applicable to the companies.
Hong Kong leveraged lease: In Hong Kong, where income taxes are low in comparison to other countries, leveraged leasing to local operators is common. In such transactions, a locally incorporated lessor acquires an aircraft through a combination of non-recourse debt, recourse debt, and equity (generally in a 49-16-35 proportion), and thus be able to claim depreciation allowances despite only being liable for half of the purchase price. Its high tax losses can then be set off against profits from leasing the aircraft to a local carrier. Due to local tax laws, these investments are set up as general partnerships, in which the investors' liability is mainly limited by insurance and by contract with the operator.
In a wet lease arrangement, the financing entity, or lessor, provides the aircraft, and complete crew, maintenance and insurance (ACMI) to another party at a cost based on hours of operation over a set time period. The lessee pays for fuel, airport fees, duties, taxes and other operational costs. Wet leases generally are established for one to 24 months. (Any shorter period would be considered simply ad hoc charter, which can be thought of as wet lease by the hour or mission.) In the commercial airline world, wet leases are typically utilized to provide supplemental lift during peak traffic seasons or during annual heavy maintenance checks. In the United Kingdom, a wet lease is employed whenever an aircraft is operated under the air operator's certificate (AOC) of the lessor.
Finance leasing, also known as "capital leasing", is a longer-term arrangement in which the operator comes closer to effectively "owning" the aircraft. 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. The operator may have the option to purchase the aircraft at the expiration of the lease, or may automatically receive the aircraft at the expiration of the lease.
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