In a sale and leaseback transaction, an airline sells either a used aircraft or its right to purchase a new aircraft from a manufacturer to a leasing company. The airline then leases the aircraft back from the lessor. This arrangement not only changes the airline´s ownership structure but also generates a cash inflow from the sale of the aircraft (for a price that could be even higher than the one paid by the airline) that can be used to pay the debt. The result of a sale and leaseback transaction is that the airline continues operating the aircraft while generating cash from its sale. This type of transaction has been widely used by airlines during the pandemic crisis arising in 2020 in order to raise funds and improve liquidity.
With an SLB transaction, physical assets are converted into liquid capital to enhance a company´s financial position and short-term profitability. Furthermore, a sale and leaseback will improve an airline´s debt-to-equity ratio and reduce depreciation expenses. Finally, several tax advantages might follow this type of transaction.
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