Bridle Blog

Would you buy or rent in this specialist sector?

Usually this would be an easy question to answer, especially when considering the acquisition of HGV, logistics, construction, transport, and yellow goods.

In many cases airside, ground handling equipment could be considered in a similar way, but there is one big difference. The operators take responsibility to maintain this specialised equipment such as Hydrant Dispensers and De-icers, which not only helps to retain the value, but actually increases the residual values.

This is why lessors are keen to operate in this sector, in effect, the lessee is making the residual value risk that much less of a risk for the lessor, removing one of the main benefits of an operating lease to the lessee.

In addition, the depreciation rate of this specialised equipment is far less than other assets, typically 10 -15% per annum, compounding the question, do all the usual benefits of operating lease apply to this specialist equipment?

With the announcement that from 1 April 2021 until 31 March 2023, companies investing in qualifying new assets will be able to claim a 130% super-deduction capital allowance on qualifying equipment investments, allowing companies to cut their tax bill by up to 25p for every £1 they invest, this makes the original question, Buy or Rent? even more difficult for some.

HMRC have now confirmed that the super deduction is available to assets acquired using hire purchase, provided that the contract provides for the ownership of the asset to pass to the hirer on exercise of an option to purchase and that the asset is capitalised in the hirer’s accounts. However, assets acquired under finance lease type arrangements will continue to be ineligible for capital allowances, including the super deduction.

Granted, owning Airside equipment can tie up useful capital, so airport operators and ground handlers have in recent years, begun to turn to a variety of rental options, including operating lease. This model was introduced quite late in the air transportation industry, probably only 15 years ago, compared to the other asset intensive industries, probably due to the complexity of maintaining this equipment.

There was understandably some cautiousness from the ground handlers to outsource this and as a result, many companies took only the lease and continued to maintain, repair, and generally look after the asset for the lessor. With maintenance being so crucially important to the residual value of the asset, one could question whether leasing really does suit this industry and perhaps answers why it was so late to the party.

Higher priced equipment, such as hydrant dispensers, pushback tractors, de-icers and air-starts tend to lend themselves to longer useful lives with most being perfectly good for up to 15 years or more and different equipment suppliers have different rules relating to the maintenance of leased airside equipment.

Companies like TCR for example, offer maintenance, repair, and spare parts management as part of the leasing offer and therefore provide a real reason to lease this specialist equipment. But, if you are simply leasing an asset and retaining the responsibility of preventive maintenance while the equipment is in your possession, you are basically looking after it for someone else and ensuring it retains its value (RV), so they make a profit when it is returned, so, should be probably be buying it instead.

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