sale and leaseback

Case Study In March 2007 Air India announced that it planned to enter into a sale-and-leaseback agreement for six 20-year-old Airbus A-310 aircraft already in its fleet. Proceeds from the sale would be used to supplement working capital and help make loan payments required on the acquisition of 68 new Boeing aircraft. At the time of the announcement, the airline had received one bid of $78 million, with a leasing arrangement requiring a monthly rental fee of $247,000 per aircraft. The lease was for a term of five years. The sale-and-leaseback arrangement would allow the firm to raise needed capital at the same time it maintained use of the six aircraft.

Can you provide an example of how a sale and leaseback can benefit a business?

A sale-leaseback transaction offers a company numerous benefits, including the ability of the seller to realize 100% of the current market value of the asset and use the proceeds to reinvest into its core operating business while maintaining use of the asset. Sale-leaseback transactions also diversify the funding sources of capital for a company outside the typical debt and equity markets and provide long-term capital with no financial covenants. The transaction provides the seller with the ability to deleverage its balance sheet and can offer tax benefits given that the rent/lease payments are tax-deductible.

Brooke Barber, Vice President, Middle Market Banking, Atlanta, GA