What is Sale Leaseback

According to definitions , a sale leaseback is an "arrangement in which one party sells a property to a buyer and the buyer immediately leases the property back to the seller. This arrangement allows the initial buyer to make full use of the asset while not having capital tied up in the asset. Leasebacks sometimes provide tax benefits. also called leaseback"

The largest and highest profile sale and leaseback arrangements usually involve land and property, however a wide range of assets are sold and leased back. The main requirement is that they are capital assets that may sensibly be the subject of a long term lease.

In my previous post I had mentioned about the sale leaseback in the aviation industry , lets look closely how does this work in this industry .

Air line companies book their order for planes wit either Boeing or Airbus at a particular price , this price label is termed as 'list price', air companies always manage to get significant discounts on the list price of the aircraft they buy. So instead of $60 million ( 258 crore) for an Airplane they pay as little as $45 million( 193 crore)

Now these airline companies sell this aircrafts to another leasing company like GE Capital Aviation Services (GECAS) at a profit of $1 to $5 million . The leasing company then leases the plane back to the company on a long term lease of 5-10 years.

In the Aviation industry it is an innovative method of accounting as well , the purchase of planes which would have shown in the books of accounts as a Capital Expenditure now looks as a Operational Expenditure , thus addressing to their Cash Flow ploblems. But even these innovative ideas are not helping the industry to show profitability to their stakeholders.