Aircraft Leasing: Wet and Dry Lease

In light of the ongoing global aircraft shortage exacerbated by the COVID-19 pandemic and supply chain disruptions, airlines have increasingly turned to wet and dry leases as solutions. These leasing options have become essential in meeting the demands for new aircraft while overcoming the challenges of limited availability in the global market.

Understanding Wet and Dry Lease

Wet Lease:

• Definition: In a wet lease, airlines lease not just the aircraft, but a fully operational setup, including:

  • Aircraft

  • Crew (pilots and cabin crew)

  • Maintenance personnel

  • Insurance (aircraft, crew, maintenance)

• The lessee retains control over commercial operations, like schedules and routes, but the lessor handles operational management.

• Ideal Use: Wet leases are typically used for short-term needs, such as:

  • Seasonal spikes in demand

  • Route testing (e.g., testing new routes without committing to long-term aircraft ownership)

  • Covering for grounded aircraft due to maintenance or other operational issues.

Dry Lease:

• Definition: A dry lease involves leasing the aircraft alone, with no crew, maintenance, or insurance.

• The lessee takes full responsibility for the operational components, including:

  • Employing their own crew (pilots, cabin crew)

  • Arranging maintenance per regulatory standards set by the DGCA (Directorate General of Civil Aviation)

  • Obtaining appropriate insurance coverage.

• Ideal Use: Dry leases are typically used for long-term fleet expansion or modernization. Airlines prefer dry leases when looking to grow or replace existing aircraft.

Damp Lease:

• A damp lease is a variant of the wet lease, offering a more limited setup.

• Features:

  • It includes aircraft, flight crew, and maintenance services, but no cabin crew.

  • The lessee is responsible for providing their own cabin crew.

• Damp leases can be referred to as partial wet leases, making them a flexible option for airlines with different operational requirements.

Regulatory Landscape: DGCA and Aircraft Leasing

In India, aircraft leasing is regulated under a robust framework, with the Directorate General of Civil Aviation (DGCA) playing a key role. The DGCA has specific guidelines for leasing, particularly with respect to the wet lease model, where operational crew may not always meet Indian regulatory approval. As such, operations of wet leases are not actively encouraged in India, as the crew is typically not approved by Indian authorities.

Why Wet and Dry Leases Are Gaining Popularity

1. Post-Pandemic Aircraft Shortage:

   • The pandemic caused significant disruptions in aircraft manufacturing and delivery schedules, exacerbating the global aircraft shortage.

   • Airlines turned to leasing, particularly wet leasing, to meet operational demands without waiting for new aircraft deliveries.

2. Cost-Efficiency:

   • Leasing allows airlines to avoid the large upfront capital costs associated with buying new aircraft. This is particularly important during times of economic uncertainty or when airlines want to maintain flexibility in their fleet.

3. Flexibility:

   • Wet and dry leases offer flexibility in fleet management, allowing airlines to scale operations up or down based on demand.

   • For example, wet leasing provides immediate access to operational aircraft with crew during peak seasons, while dry leasing offers a longer-term solution for fleet expansion or replacement.

4. Fleet Modernization:

   • For airlines looking to modernize or expand their fleet, dry leases are ideal, as they can secure newer aircraft without committing to the long-term financial burden of purchasing outright.

Challenges and Considerations

1. Crew Approval:

   • In India, the DGCA restricts wet leases due to crew approval issues. The crew from the lessor may not meet Indian regulatory standards, which could limit the operational feasibility of a wet lease arrangement.

2. Cost:

   • Wet leases are more expensive than dry leases, due to the additional services (crew, maintenance, etc.) provided by the lessor.

   • For airlines on a tight budget, the high costs associated with wet leasing can be a barrier, despite the short-term benefits.

3. Regulatory Challenges:

   • Ensuring compliance with local aviation regulations, including those related to safety, crew qualifications, and aircraft maintenance, can be a challenge when leasing aircraft across borders.

4. Market Demand:

   • The demand for wet and dry leasing options has fluctuated based on global economic conditions, airline recovery post-pandemic, and regional aviation market dynamics.

Conclusion

As airlines continue to recover from the global pandemic and face aircraft shortages, wet and dry leasing models are providing critical flexibility to maintain and expand operations. Wet leases, in particular, are an important tool to meet short-term needs, while dry leases enable long-term fleet expansion. However, challenges remain, including regulatory hurdles, cost considerations, and crew management, which will require careful strategic planning by airlines to ensure optimal use of these leasing models