AEGF primarily invests in narrow-body aircraft with a broad operator base, which it believes will retain value over time. The broad operator base typically will ensure ease of remarketing. The diversification of its portfolio is expected to create placement opportunities with new customers when aircraft leases mature.

WHY LEASE?
First of all, it makes sense. By leasing, carriers can plan for uncertainty, lay off residual risk and maximize returns on valuable capital resources. Secondly, more and more carriers are seeing how a well-capitalized lessor such as ACG can deliver value. Because of the breadth of our inventory and the wealth of our experience, we are well versed in structuring leases to meet a wide variety of individual requirements.

Operating Lease in General
A Brief History.
Aircraft operating leases were used in limited numbers as early as the 1970s - at that time almost exclusively for older used aircraft. In 1980, operating leases represented a miniscule 3 percent of the total aircraft financing market, with large and medium-sized carriers preferring to buy aircraft outright, using debt or tax-based leasing products to finance these purchases.

Increasing Popularity.
By 1988, 14 percent of the world's commercial jet aircraft were on operating lease. Between 1986 and 1996, while operating leasing's market share grew to 19 percent, the proportion of airlines operating fleets of all leased aircraft grew from 15 percent to 42 percent. Over the same period, the number of airlines that owned their entire fleets dropped from 41 percent to 16%.

Operating vs. Financial Leases.
Operating leases usually range in length from three to 10 years. In an operating lease, the lessee pays to use the aircraft during the lease term, but does not fully repay the lessor's investment and does not own the aircraft when the lease ends. Financial leases refer to a long-term debt arrangement - typically 12 to 25 years - and usually require the aircraft's full value to be repaid to the lessor over the lease term. At the end of a financial lease, the lessee usually owns the aircraft.

Tailored to Needs.
Airline leasing requirements differ widely based on criteria such as the destinations and routes an airline flies, the makeup of its existing fleets, the strength of its financial resources, and the tax and accounting rules under which it operates. Therefore each lease transaction must be tailored to the specific needs of an airline customer.

Lease Types:       There are four basic lease types, each with distinct cost & tax advantages: 

1. Operating (True) Lease - lessee pays only for the use of the equipment similar to a rental
2. Fixed Option Lease - lessee may purchase equipment for a fixed value (10%) at lease end
3. Capital Lease - lessee owns the equipment at lease end for $1
4. Sale and Lease Back - lessee sells equipment to lessor, and leases it back. 

Operating Lease (also known as True or Fair Market Value Lease)
Lease payments are based on forecasted fair market residual value at the end of the lease.  Lessor holds the equipment title, and retains depreciation rights. The IRS views an operating lease as a rental and allows the lessee to write off all lease payments as an operating expense.  Because it is considered to be a rental, the operating lease also stays off both sides of your balance sheet.  At the end of the lease term, the lessee has three options: surrender the equipment, extend the term of the lease, or buy it at its fair market value. An operating lease allows most of the cost to be deferred to the end of the lease when a decision to retain or upgrade the equipment can be made, and therefore usually results in the lowest possible lease payment.    

 
Fixed Option Lease (10% Buyout)
Lease payments are structured with a fixed portion (usually 10%) of its current value at lease end.   Tax laws get a little tricky with a fixed value lease.  Consult your accountant or tax advisor to determine the appropriate method or depreciation/write offs.  10% Fix Option Lease results in a lower monthly lease payment than a capital lease, while providing flexibility on buying or returning the equipment at the end of the lease.   The lease payments are calculated in a way that a residual value will remain open as a purchase price at the end of the lease.   At the end of the lease term, the lessee may either exercise a fixed price purchase option of ten percent of the original equipment cost, surrender the equipment to the lessor, or extend the lease.

 
Capital Lease ($1 Buyout)
Lease is structured as an installment loan or financing agreement.  Lessee own the equipment at lease end for $1.  Lessee holds title and retains qualifying depreciation rights, including the 50% bonus depreciation of President Bush's Jobs and Growth Tax Relief Reconciliation Act of 2003.   The lease payments are calculated so that only $1 of residual value is remaining at lease end.  This lease type should only be used when purchasing the equipment at lease end is certain.

Sale and Lease Back
Your pre-existing capital asset is sold, and then leased back to you, thereby increasing cash flow. Sale and lease back type leases can take the form of Operating, Fixed Option, or Capital Lease types.