Operating Lease vs Finance Lease for Aircraft
An aircraft operating lease lets you use the aircraft and hand it back, with the lessor keeping ownership and residual value risk. A finance lease is built to end in ownership, so you carry the value risk and buy the aircraft at the end, often at a preset price.
Key takeaways
- Operating lease: use it, return it, lessor carries value risk.
- Finance lease: use it, then own it, you carry value risk.
- Both usually appear on the balance sheet under current lease accounting rules.
- Choose by whether you want to own the aircraft at the end.
How do the two leases compare?
| Factor | Operating lease | Finance lease |
|---|---|---|
| Purpose | Use for part of the aircraft's life | Path to ownership |
| End of term | Return, extend, or buy at fair market value if offered | Buy, often for a preset or nominal price |
| Residual value risk | Lessor | Lessee |
| Payments cover | Part of the aircraft's value plus lessor costs | Most or all of the aircraft's cost plus interest |
| Return conditions | Central to the deal | Usually minor, since you keep it |
When is an operating lease better?
When demand is still being proven, when you expect to change aircraft types, or when you do not want to carry the risk of what the aircraft will be worth later.
When is a finance lease better?
When you intend to own the aircraft but want less cash up front than a loan requires, or when a lessor offers better terms than lenders for your profile.
How are they accounted for?
Under current U.S. lease accounting standards (ASC 842), most leases longer than twelve months put a right-of-use asset and a lease liability on the balance sheet, whether they are operating or finance leases. The expense pattern differs. Ask your accountant how your specific lease will be reported.
Aircraft Lease vs Finance Calculator
Total cost of leasing versus buying over the same term.
Frequently asked questions
Is a capital lease the same as a finance lease?
Yes. Capital lease was the older term; finance lease is the term used under current U.S. accounting standards.
Can I negotiate a purchase option into an operating lease?
Often, yes, usually at fair market value at the time of purchase.
Sources
This guide is educational and is not tax, legal or investment advice. See our editorial standards and disclosures. Spot an error? Tell us.
