Implications of Wet Leasing to Paper Airlines: Generating Capacity Outside an Air Service Agreement

Abstract

Operating aircraft under leasing has increased greatly over the past twenty years. One type of aircraft leasing, wet leasing, is the practice of providing not only the aircraft to the lessee but also at least some of the crew, and potentially the maintenance, and insurance for the aircraft. In a wet lease agreement, because the lessor usually provides the majority of the aircraft’s servicing functions, the lessor is typically considered the operator of the aircraft but the aircraft is flown under the lessee’s designator code. In states where substantial ownership regulations are less restricted, an airline in one state can own a paper airline in another state. In such a scenario, the lessor may own the foreign airline that it wet leases to and use the lessee’s traffic rights.This paper focuses on the implications of a lessor wet leasing to a foreign paper airline in which the lessor has a financial stake. One such implication includes how the lessor can use the lessee’s traffic rights to generate a route between the lessor airline’s state of registry and a third state without an air service agreement between the states. The primary, and seemingly only, example of this innovation is the TACA airlines arrangement with LACSA that created a route between El Salvador and Canada from 2006 to 2010, when El Salvador and Canada did not have an air service agreement. Other implications of similarly innovative wet leasing arrangements to a paper airline or struggling airline are also analysed, such as an expansion of capacities beyond that provided in an air services agreement (ASA).