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Wet lease agreements: universal remedy for airlines post crisis or risky business?

The main business of airlines is flying planes from A to B with passengers or cargo. There are various developments that can make a customer journey better and airlines more efficient and profitable, be it cooperating with partners in interline and codeshare agreements or joint-ventures. However, that main component of flying an aircraft from one location to another has recently seen shifts when it comes to the entity that actually owns the plane and hires the operating crew.

Whether used as a mere financial measure through a financial leasing agreement (e.g. sale & leaseback) or through actual short-term leases for peak periods, wet lease agreements have increased in popularity. A trend in the recent years has been to go further and rather than leasing just the aircraft, leasing the entire operation from aircraft to crew to maintenance and insurance (ACMI). 

This additional flexibility has proven to be crucial in 2020 when demand plummeted and passenger levels are not expected to reach pre-crisis levels until 2024 or 2025. Rather than cancelling and therefore often writing-off own assets in a demand down-turn as we have seen with COVID-19, a leasing agreement acts as an initial buffer on top of the fully owned supply.

This model has been a staple of the U.S. industry with regional carriers such as Republic Airways continuously operating for American, Delta and United. In recent years, other markets have been catching on to this trend, with both temporary replacements as well as long-term lease contracts.

British Airways for example, temporarily replaced their 787s with wet lease capacity from Air Belgium in 2019, when aircraft engines had to undergo unexpected inspections. With the aviation world facing a period of the biggest uncertainty in its history regarding short and mid-term travel levels, the question arises whether ACMI agreements are a sustainable tool in a post-COVID market.

Michelle Buhl, Consultant, outlines the various challenges in the management of the customer journey and customer expectations when integrating wet lease operations, and considers concepts how airlines can preserve their brand value while still being able to make full use of the benefits of wet leasing.

Read the full article here

Further insights from Lufthansa Consulting’s aviation experts are available here