Aircraft Leasing Options

[Master]

Isn't it possible to terminate a leasing contract by paying its penalty?

[Sanabas]

It is, but there is a minimum lease term of 10% of the total lease. So if you take out a 5 year lease, you can't terminate it in the first 6 months. You also can't terminate it if you don't have the cash to pay the penalty.

[Master]

Dear Sanabas,

If the loan period is 15 years what will be the minimum time period for cancellation?


Thanks in Advance,
Master

[MidlandDeltic]

It is, but there is a minimum lease term of 10% of the total lease. So if you take out a 5 year lease, you can't terminate it in the first 6 months. You also can't terminate it if you don't have the cash to pay the penalty.

And that is the real killer if you are in trouble.  In real life, lessors would rather get an aircraft back shy of some lease rental, rather than go to the hassle of chasing a bankrupt operator and getting back an aircraft badly maintained and in poor condition.  In my view, if you are under a bankruptcy warning in AWS you ought to be able to hand back aircraft without penalty - possibly with a loading on lease prices later if you recover.

Regards

MD

[MidlandDeltic]

Dear Sanabas,

If the loan period is 15 years what will be the minimum time period for cancellation?


Thanks in Advance,
Master

If it's 10% of lease length, then 1.5 years or 18 months.  Personally, I do not in normal circumstances lease for that long as you get caught for D-checks, and it's too expensive to get out.

Regards


MD