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CS Professional · IFSCA - Regulations, Listing and Compliances · Banking Services and Finance Companies in IFSC

Sky Wing Leasing, a finance company set up in GIFT IFSC, buys an aircraft and leases it to an airline for 8 years. Sky Wing keeps legal ownership, claims depreciation, and bears the risk of the aircraft's residual value at lease end. The airline pays fixed monthly rentals for using the aircraft. How is this arrangement best described?

This is an operating lease. The IFSC lessor keeps legal ownership, claims depreciation and carries the residual value risk, while the airline pays rentals only for using the aircraft. No ownership transfer is indicated, so it is not hire purchase or a deferred sale.

  1. AOperating lease, because the lessor keeps ownership and residual value riskCorrect
  2. BHire purchase, because the airline will automatically become owner
  3. CSale on deferred payment, because rentals are fixed
  4. DBareboat charter of a vessel, because the lessee pays for use

Explanation

Where the lessor retains ownership, depreciation and the residual value risk, and the lessee merely pays rentals for the use of the asset, it is an operating lease. Nothing in the facts suggests ownership passes to the airline, so hire purchase or sale is wrong. A bareboat charter relates to ships, not aircraft.

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