Aircraft leasing model
Lessor rent, maintenance reserves, debt and residual value. Build a lessor’s portfolio from the aircraft up: rent from a lease rate factor, straight-line revenue against cash, downtime and the cost of moving an aircraft to its next airline, maintenance reserves held apart from revenue, a secured loan refinanced at maturity and tested for DSCR and LTV, and the sale against book value, then read what each of them does to the equity return.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: aircraft leasing model.Updated 4 November 2026
Who builds it, and for whatThe model an operating lessor’s pricing and investment teams build before they bid for an aircraft, a sale and leaseback or a portfolio, and that an aviation finance bank, an asset-backed securitisation investor or a private credit fund rebuilds before lending against one. The lessor uses it to decide what it can pay for a stream of rent and a residual value; the lender reads the same cash flows for coverage and loan-to-value; both run the downside in which a lessee defaults, the aircraft sits idle and the next lease is signed for less.
Every sheet below, in your browser, with its outputs and checks
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| A | B | C | D | E | F | G | |
|---|---|---|---|---|---|---|---|
| 1 | Assumptions | ||||||
| 2 | $m unless stated. Portfolio inputs in column C; aircraft inputs in the three aircraft columns. All figures are illustrative. | ||||||
| 4 | Input | Unit | Aircraft A | Aircraft B | Aircraft C | Notes | |
| 5 | Scenario and timing | ||||||
| 6 | Scenario | # | 1 | 1 = base, 2 = bear, 3 = bull. Selects a column of the Scenarios sheet. | |||
| 7 | Financial close, calendar year | year | 2027 | Every aircraft is bought at close, the start of Y1 | |||
| 8 | Hold period | years | 8 | The portfolio is sold at the end of this year; 1 to 10 | |||
| 10 | Portfolio costs and sale | ||||||
| 11 | Useful life for book depreciation | years | 25 | From the year of build, straight line to the book residual value | |||
| 12 | Servicing and administration | % | 3.0% | % of cash rent: lease management, technical oversight, insurance monitoring | |||
| 13 | Sale costs | % | 1.5% | % of the sale price: brokerage, legal and transfer costs | |||
| 15 | Financing | ||||||
| 16 | Loan-to-value at close | % | 70.0% | Senior secured loan as a share of the price paid | |||
| 17 | Interest rate to maturity, fixed | % | 4.5% | Swapped to fixed at close; charged on opening balances | |||
| 18 | Arrangement fee | % | 1.0% | % of the loan, paid at close | |||
| 19 | Scheduled amortisation, annual | % | 4.0% | % of the original loan each year; the rest is a balloon | |||
| 20 | Loan maturity | years | 6 | The balloon is refinanced at maturity when the portfolio is still held | |||
| 21 | Refinancing rate, base case | % | 4.8% | Fixed on the refinanced balance; the scenario moves it | |||
| 22 | Refinancing fee | % | 0.8% | % of the balance refinanced | |||
| 23 | DSCR covenant, minimum | x | 1.2x | CFADS over scheduled interest and amortisation | |||
| 24 | LTV covenant, maximum | % | 80.0% | Loan over the market value of the fleet at each year end | |||
| 26 | Returns | ||||||
| 27 | Equity discount rate | % | 10.0% | For the equity NPV: the return the investor requires | |||
| 29 | Aircraft and price | ||||||
| 30 | Aircraft type | Narrowbody, new technology | Narrowbody, current technology | Widebody | |||
| 31 | Year of build | year | 2027 | 2019 | 2022 | ||
| 32 | Price paid | $m | 55.0 | 30.0 | 90.0 | Taken to be the market value at close, with the lease attached | |
| 33 | Market value decline, annual | % | 3.0% | 5.0% | 5.0% | Base value curve: price x (1 - decline) ^ years since close | |
| 34 | Book residual value at the end of useful life | $m | 8.3 | 6.0 | 13.5 | Depreciation runs to this figure | |
| 36 | Current lease | ||||||
| 37 | Lease rate factor, current lease | % a month | 0.80 | 1.10 | 0.85 | Monthly rent as a % of the price paid | |
| 38 | Rent escalation, annual | % | 1.0% | 0.0% | 1.5% | Fixed escalation each year from close; recognised straight line | |
| 39 | Months left on the lease at close | months | 120 | 48 | 72 | At most 120, the ten years laid out | |
| 40 | Security deposit | months of rent | 2 | 3 | 2 | Held as restricted cash and returned at lease end | |
| 41 | Exposed to the default scenario | flag | 0 | 0 | 1 | Set to one for the lessee whose default the scenario tests | |
| 43 | Maintenance reserves and return conditions | ||||||
| 44 | Maintenance reserves paid by the lessee | $m a month | 0.06 | - | 0.15 | Supplemental rent for heavy checks, engines and landing gear; zero where the lease uses end-of-lease compensation | |
| 45 | Reserve balance taken over at close | $m | - | - | 2.5 | Passed from the seller with the lease, as restricted cash | |
| 46 | Major maintenance event, year | year | 8 | 0 | 4 | The lessee’s heavy check or engine shop visit; 0 = none during the current lease | |
| 47 | Reimbursement claimed for the event | $m | 7.0 | - | 6.0 | Paid from the reserve; anything above it is the lessor’s contribution | |
| 48 | End-of-lease compensation | $m | - | 2.5 | - | Cash for the condition at return, where no reserves are paid | |
| 50 | Re-leasing | ||||||
| 51 | Downtime between leases, base case | months | 6 | 6 | 6 | ||
| 52 | Carrying cost while off lease | $m a month | 0.05 | 0.04 | 0.08 | Storage, insurance and preservation | |
| 53 | Transition and reconfiguration cost | $m | 1.0 | 1.5 | 4.0 | Records, paint, cabin changes and redelivery to the next airline | |
| 54 | Maintenance funded by the lessor at return | $m | 1.5 | 3.0 | 4.0 | Work to bring the aircraft to the next lease’s delivery condition | |
| 55 | Lease rate factor, second lease | % a month | 0.90 | 1.10 | 0.95 | On the base value at the start of the second lease; flat rent | |
| 56 | Second lease term | months | 96 | 96 | 96 | ||
| 57 | Repossession cost on a default | $m | 1.0 | 1.0 | 2.5 | Legal, ferry flight and records reconstruction | |
Select a cell to see its row, its schedule and the type of cell. Font colours: blue for inputs, black for formulas, green for links to other sheets. Scroll sideways to see every period.
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Aircraft leasing model: the workbook
An Excel workbook with working formulas, no macros and no external links: the same model you can work with on this page.
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- The worked model
- 14 sheets and 2,770 live formulas, all 8 schedules built and linked, every check reading zero. Change an input in Excel and the whole model moves.
- The starter
- The same inputs and layout with the maintenance reserves and security deposits left blank for you to build, each blank cell marked. The worked model is its answer.
What the base case says
- Equity IRR
- 9.9%
- Unlevered IRR
- 6.3%
- Equity multiple
- 1.7x
- Equity NPV at the discount rate
- $-0.3m
- Minimum DSCR
- 1.2x
- Maximum LTV
- 70.4%
- Gain or loss on sale
- $2.3m
- Maintenance revenue over the hold
- $7.3m
- Equity at close
- $53.7m
- Portfolio lease rate factor at close, % a month
- 0.88
Read from the workbook as served, every input at its default. Periods: Close, Y1, Y2, Y3, Y4, Y5, Y6, Y7, Y8, Y9, Y10. The figures are invented and move with whatever you type in.
What this model is
An operating lessor’s investment and financing model for three invented aircraft, a new narrowbody leased back to its airline, a mid-life narrowbody and a widebody, bought with their leases at financial close, financed with a secured loan and sold together at the end of a hold period chosen on the Assumptions sheet.
Rent comes from a lease rate factor on the price paid. Each current lease ends, the aircraft is off lease for its downtime, is moved to a second airline at a cost and re-leased on its base value. Maintenance reserves and security deposits are held as restricted cash until they are reimbursed, returned, released at lease end or passed to the buyer. The loan is sized at a loan-to-value, amortised, refinanced at maturity and repaid from the sale, with DSCR and LTV tested against covenants.
Uses: learning how a lessor earns its return, why maintenance reserves are not revenue, what downtime and a lessee default cost, and how much of the equity return rests on the residual value and the price paid.
Seats: Investment banking, Private equity.
Careers that do this work: infrastructure & real assets, debt capital markets, private credit.
How the schedules connect
Every row in the workbook is tagged with the schedule it belongs to; the inspector above shows the tag when you click a row. These are the schedules this model is made of and where each one lives.
Lessor lease revenue and re-leasing
Lease rate factor, straight-line rent, downtime
Assumptions, rows 37–41 · Assumptions, rows 51–57 · Acquisition, rows 12–16 · Acquisition, rows 19–25 · Lease, rows 6–8 · Lease, rows 11–22 · Lease, rows 25–36 · Lease, rows 39–50 · Lease, rows 53–56 · Re-leasing, rows 6–15 · Re-leasing, rows 18–27 · Re-leasing, rows 30–39 · Re-leasing, rows 42–47
Maintenance reserves and security deposits
Restricted cash held for the lessee
Assumptions, rows 44–48 · Maintenance, rows 6–14 · Maintenance, rows 17–21 · Maintenance, rows 24–32 · Maintenance, rows 35–39 · Maintenance, rows 42–50 · Maintenance, rows 53–57 · Maintenance, rows 60–71
Book depreciation, residual value and sale
Book value against market value at exit
Assumptions, rows 11–13 · Assumptions, rows 30–34 · Acquisition, rows 6–9 · Residual and Sale, rows 6–11 · Residual and Sale, rows 14–19 · Residual and Sale, rows 22–27 · Residual and Sale, rows 30–37
Debt schedule
Tranches, interest, amortisation and the sweep
Assumptions, rows 16–22 · Financing, rows 6–8 · Financing, rows 11–22
Coverage ratios
DSCR, LLCR and PLCR
Assumptions, rows 23–24 · Financing, rows 25–30 · Returns, rows 25–29
CFADS
Cash flow available for debt service
Assumptions, row 12 · Cash Flow, rows 6–16 · Cash Flow, rows 19–25
Project and equity returns
Gearing, project IRR, equity IRR and multiple
Assumptions, row 27 · Returns, rows 5–14 · Returns, rows 17–22
Sensitivity tables
Two assumptions at once, without a data table
Sensitivities, rows 5–8 · Sensitivities, rows 11–14 · Sensitivities, rows 18–21 · Grid Workings, rows 6–9 · Grid Workings, rows 12–26 · Grid Workings, rows 29–43
What you should be able to explain
- What a lease rate factor is and why a lessor quotes rent as a share of the aircraft’s value each month.
- Why a lessor’s return depends as much on the downtime between leases and the residual value as on the rent written today.
- Why maintenance reserves are a liability held in restricted cash, and when the unused balance becomes revenue.
- Why escalating rent is recognised straight line, and where the receivable it builds goes at a default or a sale.
- How an operating lessor’s accounting differs from the airline’s on the other side of the same lease.
- How DSCR and LTV covenants behave when a lease ends and the aircraft is off lease.
What a reviewer looks for
- Counting maintenance reserves as rent, so revenue, CFADS and the equity return include cash that belongs to the lessee until it is reimbursed.
- Assuming every lease is renewed the day it ends, with no downtime, transition cost or maintenance at return.
- A sale price that is the book value, so the residual value, the largest single cash flow, carries no view at all.
- Rent with fixed escalations recognised as cash, so revenue climbs every year when the accounting holds it flat.
- Covenants tested only in the base case, when the year that breaches them is the year a lease ends.
Conventions this workbook uses
Stated on the cover sheet too. A model is only as trustworthy as the decisions it tells you it made.
- Annual periods. Close is financial close, when every aircraft is bought; Y1 to Y12 follow. Lease timing is in months from close, so a lease that ends in month 54 earns six months of rent in Y5. The portfolio is sold at the end of the hold year.
- Rent is the lease rate factor (monthly rent as a % of the price paid) times the price, with any fixed escalation each year from close. The second lease is priced at its own lease rate factor on the aircraft’s base value when it starts, at a flat rent. Downtime, transition, reconfiguration and the maintenance the lessor funds at return fall in the year the current lease ends.
- Accounting is the lessor’s operating-lease treatment under US GAAP (ASC 842), the same in substance under IFRS 16: the aircraft stays on the lessor’s balance sheet and is depreciated straight line to a book residual value over a 25-year life from build; escalating rent is recognised straight line over the lease, building a receivable that unwinds by the end of the term; maintenance reserves and security deposits are liabilities held as restricted cash. The airline on the other side books a right-of-use asset and a lease liability.
- Maintenance reserves reimburse the lessee’s major maintenance up to the balance held; anything above it is a lessor contribution and an expense. What is left when a lease ends is released to maintenance revenue. A deposit is returned at lease end, kept if the lessee defaults, and both pass to the buyer at the sale. Returns count only unrestricted cash.
- A lessee default (bear case) ends the current lease early: rent stops, reserves are kept, the deposit is applied, any straight-line receivable is written off, no end-of-lease compensation is paid and repossession costs fall due. The aircraft then follows the same downtime and re-lease.
- One secured loan on the portfolio, drawn at the loan-to-value on the price paid, interest on opening balances, amortised at a fixed share of the original loan a year, its balloon refinanced in full at maturity at the refinancing rate, repaid from the sale. DSCR is CFADS over scheduled interest and amortisation; LTV is the balance over the fleet’s market value at each year end. Covenant breaches are reported as warnings and do not change the cash flows.
- Market value follows a base value curve, the price paid declining at a fixed rate a year, times the scenario’s factor; the sale price is that value less sale costs. Everything is before tax.
- The sensitivity grids are recomputed from rows on the Grid Workings sheet rather than an Excel data table; each cell is the selected case moved by rows the workbook carries.
What this model does not cover
Where its answer stops, so you know what to add before relying on it.
- Tax. Returns are before tax; lessors are typically domiciled where tax depreciation shelters most of the rent, and the structure decides the rest.
- Monthly cash flows and the lessee’s credit spread. Rent arrives in annual totals, and default is a scenario rather than a probability.
- Maintenance-adjusted value. The sale price follows a base value curve and ignores how far each aircraft is through its maintenance cycle.
- Currency, interest rate hedges beyond a fixed rate, and a revolver or minimum cash for the portfolio.
- Purchase rights, extension options, sale and leaseback pricing negotiations, and lessor fleet-wide overheads.
- Impairment testing and the airline’s own accounting for the lease, which is the airline model’s subject.
Build it yourself
The starter workbook
The Maintenance sheet has been cleared: for each aircraft, the reserves taken over, received on each lease, claimed, reimbursed and released at lease end, the lessor’s contribution above the reserve, what passes to the buyer, and the security deposits received, returned and kept on a default; then the restricted cash roll. Build them so that the Cash Flow and Returns sheets calculate again. The Checks sheet shows when restricted cash equals the liabilities to lessees in every year and maintenance revenue appears only in a year a lease ends.
Blanks: Maintenance reserves and security deposits. Download it beside the worked model.
The path around this model
Understand it, drill it, read the build, then apply it to a real company.
Build · Lab · ~12 min
DSCR Sculpting
Sculpt debt service to CFADS at a target DSCR, size the loan as its present value, split a payment into interest and principal, and explain why a level repayment profile fails a project lender.
Build · Lab · ~3 min
IRR by Eye
Say the IRR for any multiple and hold before the interviewer finishes the sentence, and the multiple for any IRR.
Read · Guide · 12 min
Project Finance Modelling: Cash Flow Waterfalls, DSCR Sizing and the Debt Sculpt
Read · Guide · 11 min
Credit and Covenant Modelling: What a Lender Actually Tests
Read · Guide · 10 min
Scenario and Sensitivity Architecture: Building a Model That Can Be Stress-Tested
Apply · Skill
Model Audit
Find the errors in a financial model before someone senior does.
Vocabulary: Operating Lease, Straight-Line Rent, Loan-to-Value (LTV), DSCR (Debt Service Coverage Ratio), Covenant, IRR, MoIC, Depreciation & Amortisation (D&A).
Questions about this model
What is a lease rate factor?
Monthly rent as a percentage of the aircraft’s value. A new narrowbody bought for $55 million at a 0.80% factor pays $440,000 a month, $5.28 million in the first year, escalating at 1% a year; the accounts recognise $5.52 million a year, straight line over the ten-year lease. Older aircraft carry higher factors because less value remains to earn on: the mid-life narrowbody here leases at 1.10%. Across the three aircraft the factor at close is 0.88% a month.
Why are maintenance reserves not revenue?
Because they belong to the lessee until the lease ends. The lessee pays them monthly so that the money for a heavy check or an engine shop visit is there when it falls due, and the lessor reimburses that work from the balance. Until then they are restricted cash and a liability. The widebody’s reserve reaches $13.3 million (a $2.5 million balance taken over at close and $10.8 million paid in), $6.0 million is reimbursed for a check in year 4, and the $7.3 million left is released to revenue only when its lease ends in year 6.
What does the base case return?
An equity IRR of 9.9% and 1.66 times the equity, on an unlevered IRR of 6.3%, so just short of a 10% hurdle. The $175 million portfolio is 70% financed at 4.5%, its balloon refinanced at 4.75% in year 6, and sold at the end of year 8 for $122.7 million, a $2.3 million gain over book value. The lowest DSCR is 1.24x, in year 7, when the widebody spends six months between airlines, against a 1.20x covenant.
What happens in the bear case?
The widebody’s airline defaults in month 30. Rent stops, the lessor keeps the reserves and the deposit, writes off the straight-line receivable and pays to repossess the aircraft, which then sits idle for a year and re-leases at 15% less. Market values fall two points a year faster and the refinancing costs 1.5 points more. The equity IRR falls to minus 2.1%, the DSCR to 0.92x in years 3 and 4, and the LTV reaches 80.4% in year 8, past its 80% covenant. The bull case returns 12.4%.
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Questions about this model
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