Leasing in low-cost carriers

Abstract

The aim of this paper is to explore the use of aircraft leasing as a financing instrument in the low-cost carriers’ sector. These airlines have been showing a huge growth in the customers’ preferences, while aircraft leasing plays a relevant role in the financing options of airlines. In this study we determined that lease future commitments represent on average 80% of other debt commitments in low-cost carriers. Furthermore, we discovered that the leasing rate in low-cost airlines (49%) is superior to the global average (39%), partly explained by the lower capital requirements that a lease offers comparing to a purchase. We found a high negative correlation between average fleet age and use of leasing. The reason is that leases allow the airlines to renew the fleet more easily and get younger aircraft (in fact, 67% of the leased aircraft are newly-manufactured, something unlikely to happen with purchases). Negative correlations were also found between use of leasing and the variables of fleet size, on-time performance, profit margin and debt ratio, but without statistical evidence. Use of leasing is best explained by average fleet age and fleet size, meaning that variables related to the constitution of the fleet are better in explaining the use of leasing by low-cost carriers than performance or financial measures.

Date of Award	19 Feb 2014
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ricardo Reis (Supervisor)