A leaseback arrangement is one of the most common structures for aircraft owners who want to offset ownership costs by making their aircraft available for charter when they are not using it. Under a leaseback, the aircraft owner leases the aircraft to a charter operator (or their management company's charter operation), which then makes it available for charter flights. Revenue from those charter flights flows back to the owner, typically minus a commission for the operator.
How a Leaseback Works
- Ownership: You own the aircraft (personally or through an LLC/entity).
- Lease agreement: You enter into a lease agreement with a Part 135 charter operator. The operator adds the aircraft to their operating certificate.
- Operations: When you are not using the aircraft, the operator makes it available for charter.
- Revenue sharing: Charter revenue is split between you (the owner) and the operator, typically 75-85% to the owner and 15-25% to the operator.
- Your use: You retain priority use of the aircraft, typically with reasonable advance notice to the operator.
- Costs: Operating costs (fuel, crew per flight, landing fees) for charter flights are deducted from charter revenue before the split.
Typical Revenue Sharing Structures
Gross Revenue Split
The operator takes a percentage of the gross charter revenue and covers flight-specific costs from their share. This is simpler for the owner to track but may yield lower net returns.
Typical split: 60-70% to owner, 30-40% to operator
Net Revenue Split
Flight-specific costs (fuel, crew trip costs, landing fees, catering) are deducted first, and the net revenue is split. This is more transparent and typically favors the owner.
Typical split: 80-90% to owner, 10-20% to operator (of net)
Expected Returns
Charter revenue potential varies significantly based on aircraft type, location, and market conditions:
Annual Gross Charter Revenue Ranges
- Light jets: $300,000 - $600,000 (200-400 charter hours)
- Midsize jets: $500,000 - $1,000,000 (150-350 charter hours)
- Large cabin jets: $800,000 - $2,000,000 (100-250 charter hours)
After operating costs and operator commission, net revenue to the owner is typically 30-50% of gross.
Cost Offset Potential
For most owners, a realistic leaseback generates enough revenue to offset 25-50% of fixed ownership costs. It rarely covers 100% of costs, and it should not be the primary financial justification for purchasing an aircraft.
Factors Affecting Charter Revenue
- Aircraft type: Popular charter categories (light jets, midsize, super-midsize) generate more bookings than very light jets or ultra-long-range aircraft
- Home base: Aircraft based near major metropolitan areas (New York, Los Angeles, Miami, London) charter significantly more than those in secondary markets
- Availability: The more days per month you make the aircraft available for charter, the more revenue it generates. Owners who block out excessive personal dates limit revenue potential.
- Aircraft condition: Modern interiors, well-maintained exteriors, and current avionics attract premium charter rates
- Operator quality: A well-known operator with strong broker relationships books more charter than an obscure one
- Market conditions: Charter demand fluctuates with the economy, seasonality, and competitive dynamics
Risks of Leaseback
- Accelerated wear: Charter operations add flight hours and cycles to your aircraft, accelerating maintenance schedules and reducing residual value faster
- Revenue uncertainty: Charter revenue is not guaranteed. Market downturns, increased competition, or reduced demand can significantly reduce bookings.
- Scheduling conflicts: Despite priority scheduling for owners, popular charter periods overlap with when you may want to fly
- Insurance costs: Insurance premiums for charter operations are significantly higher than Part 91-only coverage
- Regulatory burden: Operating under Part 135 adds regulatory requirements, inspections, and compliance costs
- Liability exposure: Charter passengers create additional liability exposure beyond personal use
Tax Implications
Leaseback arrangements have specific tax considerations:
- Business income: Charter revenue is taxable income
- Business use percentage: Charter hours generally count as business use, which helps maintain the >50% business use threshold required for accelerated depreciation
- Expense deductions: Operating costs attributable to charter operations are deductible
- Passive activity rules: Depending on your involvement level, leaseback income may be classified as passive income, subject to passive activity loss limitations
- Sales tax: Some jurisdictions apply sales tax to charter revenue or provide sales tax exemptions for aircraft used in commercial service
Choosing a Leaseback Partner
- Evaluate the operator's charter sales track record and market presence
- Review their safety ratings and operational standards
- Understand their revenue sharing structure in detail
- Examine their fleet — are they likely to position your aircraft competitively?
- Check references from other aircraft owners in their program
- Review the contract terms carefully, including termination provisions
