Why an ACMI Lease Will Play a Major Role in Post-COVID-19 Airline Recovery
Even though the COVID-19 global pandemic has undeniably affected every industry, it will not be an exaggeration to say that one of the hardest hit is the aviation industry and its ecosystem. Every single link of the aviation industry chain — whether it is the airlines, airports, MRO, ground services provider, handling agencies, or travel partners — has seen a huge and almost instantaneous impact.
Amongst a myriad of challenges that airlines around the globe are facing, one of the most significant ones is managing the fleet of aircraft.
More than half of the total commercial aircraft are not owned by the airline and are on operating or finance lease. Consider that the revenue levels of the airlines went down to about 30% in the first six months of the crisis, making an unrecoverable dent in the cash flow of the airlines and thus also affecting their capability of paying the rental bills.
As a result, approximately 40% of aircraft in the world are either grounded, parked or repossessed by the asset owner, leaving the airlines in a spiral of losses and slower rate of reentry into the market due to short capacity. The COVID-19 regulatory restrictions on the payload and frequency did not help, either.
It is mostly in these cases that an Aircraft, Crew, Maintenance and Insurance (ACMI) lease can be developed as a solution to bridge the capacity gap during the interim period demonstrating the slow road to recovery of the passenger traffic for airlines. While the world economy is finding its feet and the aircraft fleet acquisition is revived, the airlines can, at the very least, decrease their operating losses by adding strategic capacity into their markets.
What is an ACMI Lease?
ACMI is a type of aircraft lease where the lessor provides the Aircraft, Crew, Maintenance and Insurance.
All of these are priced on the basis of utilization hours, sector length, etc.
The aircraft continues to be on the lessee’s registration and the operational control of the program is temporarily transferred to the regulatory authority of the Lessee’s country.
Advantages of an ACMI Lease
Here are a few of the advantages of that make ACMI leasing even more relevant in the current time, according to ACI, a trusted provider of specialized aviation services:
The champion of all the advantages of an ACMI solution is the flexibility it gives to the airlines in terms of the type of aircraft, the period of operation, and the selected route network.
While a Dry/Operating lease typically is long term (above six years’ duration), the ACMI can be arranged for as short as three months.
2. Capital commitment
While the operating expenses in an ACMI contract may be slightly above the average flying costs, the biggest advantage is a negligible capital outpour and commitment.
3. Mixed fleet advantage
ACMI aircraft allows the lessee to venture away from the aircraft brand operational in their current fleet. As an example, an Airbus 320 operator can wet lease a B737 aircraft and vice versa just as long as the seat capacity criterion is met.
4. Matching demand and supply across the globe
The recovery path for the airlines will undoubtedly not be uniform for different countries and continents, creating a mismatch between the demand and supply of aircraft, at least in the short run. As is already the case, we may see markets like Asia and Africa revive at a faster speed than more traditional markets of Europe and Americas. An ACMI lease can be very instrumental in bringing this short-term gap.
With the return of leisure travel, the regular inverse seasonality will also see a comeback, perhaps with the shorter high seasons, and the airlines surely would be able to revive much faster if they are able to take advantage of these short peaks in the traffic.
6. Upsurge in the cargo traffic
During the entire pandemic, and even in the aftermath, the global air freight market has lost a huge chunk of available capacity catered to by the belly hold capacity of the wide body aircraft network, which is also the slowest to recover going forward. As a result of which, there is an enormous surge in the demand of freighter aircraft. Suddenly, the total availability of the freighters across all markets is not enough to cater to this new world demand.
As a result of this, many airlines are increasingly converting and releasing P2F aircraft in the market. Though the current demand for these is quite high, given the volatility of the post-COVID-19 trends, it is much better for the airlines to acquire these aircraft on ACMI lease as it saves them from the whole gamut of operational and regulatory hoops they would otherwise have to jump through to have such aircraft under their operating certificates.
Challenges to Expect
Regulatory authorities in most countries, owing to the complexities of shared operational oversight, are still reluctant to allow the operators an aircraft wet lease. There are some regional pairs where the corridor is smoother; however, the standardized regulatory authorities like EASA and FAA tend to be stringent.
However, with the post-COVID-19 world, there might be a need to create more unified processes to enable easier and smoother processes for ACMI leasing.
ACMI leasing is one of the underutilized tools that the global aviation Industry has. Now may be the best time to recognize its importance and renewed relevance to help tide the airlines over these unexpected turbulent times.
Get in touch with us at Air Charter International, provider of bespoke aviation services, to discuss the best solutions for your needs.
Published – January 2021
Author – Prerna Challu Fogat